Slate Grocery REIT Reports Third Quarter 2024 Results

TORONTO--(BUSINESS WIRE)--Slate Grocery REIT (TSX: SGR.U) (TSX: SGR.UN) (the "REIT"), an owner and operator of U.S. grocery-anchored real estate, today announced its financial results and highlights for the three and nine months ended September 30, 2024.

"We are pleased to see the impact of several consecutive quarters of strong leasing volumes at high spreads on our same-property net operating income this quarter, which increased by 6.2% year-over-year, including the impact of redevelopments," said Blair Welch, Chief Executive Officer of Slate Grocery REIT. "At the same time, our team worked with both existing and new institutional lenders to refinance the revolving credit facility and term loan, which we secured at interest rate spreads similar to the maturing debt, reflecting the quality of our real estate portfolio and the strength of our lender relationships. By staggering the maturity profile of our debt, we reduced the risk to our balance sheet, allowing us to focus on maintaining strong operations and performance over the coming quarters."

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

Highlights

• Achieved 6.2% or $2.4 million same-property Net Operating Income (“NOI”) growth year-over-year, adjusting for completed developments, driven by several consecutive quarters of strong leasing volumes at attractive spreads
  • Completed 850,455 square feet of total leasing in the quarter; new deals were completed at 24.8% above comparable average in-place rent, and non-option renewals at 14.1% above expiring rents
  • Portfolio occupancy remained stable at 94.6% as at quarter end
  • The REIT's average in-place rent of $12.61 per square foot remains well below the market average of $23.58¹, providing significant runway for continued rent increases
• Refinanced $500.0 million of debt subsequent to quarter end, addressing a significant portion of upcoming debt maturities
  • Entered into a new credit facility agreement for an aggregate principal amount of up to $500.0 million, comprising a $275.0 million revolving credit facility and a $225.0 million term loan facility, at interest rate spreads similar to the maturing debt facility
  • The REIT is also in advanced stages with lenders to refinance another $138.0 million of upcoming debt maturities, which are expected to be completed during the fourth quarter
  • Subsequent to these refinancings, the REIT's forecasted weighted average interest rate will be 4.8% when accounting for in-place interest rate swap contracts, providing significant positive leverage and stability for the REIT
• The REIT's units continue to trade at a discount to Net Asset Value ("NAV"), presenting a compelling investment opportunity for unitholders looking for an attractive total return
  • As at September 30, 2024, the REIT's unit price represents a 24.5% discount to NAV

^{(1) CBRE Econometric Advisors, Q3 2024}

Summary of Q3 2024 Results

	Three months ended September 30,
(thousands of U.S. dollars, except per unit amounts)		2024		2023	Change %
Rental revenue	$	52,325	$	50,629		3.3%
NOI^1 2	$	41,897	$	40,182		4.3%
Net income ^2	$	7,248	$	12,370		(41.4)%
Same-property NOI (3 month period, 111 properties) ^1 2	$	40,204	$	38,367		4.8%
Same-property NOI (12 month period, 110 properties) ^1 2	$	154,649	$	152,294		1.5%
New leasing (square feet) ^2		123,841		103,142		20.1%
New leasing spread ^2		24.8%		18.4%		34.8%
Total leasing (square feet) ^2		850,455		691,421		23.0%
Total leasing spread ^2		8.5%		10.9%		(22.0)%
New leasing – anchor / junior anchor ^2		72,582		32,400		124.0%
Weighted average number of units outstanding ("WA units")		60,347		60,473		(0.2)%
FFO^1 2	$	17,552	$	16,329		7.5%
FFO per WA units^1 2	$	0.29	$	0.27		7.4%
FFO payout ratio^1 2		73.9%		79.6%		(7.2)%
AFFO ^1 2	$	14,303	$	13,061		9.5%
AFFO per WA units^1 2	$	0.24	$	0.22		9.1%
AFFO payout ratio^1 2		90.7%		99.6%		(8.9)%
Interest coverage ratio^1	2.79x		2.91x			(3.8)%
(thousands of U.S. dollars, except per unit amounts)	September 30, 2024		December 31, 2023		Change %
Total assets, IFRS	$	2,223,198	$	2,235,798		(0.6)%
Total assets, proportionate interest ^1 2	$	2,436,010	$	2,448,127		(0.5)%
Debt, IFRS	$	1,157,092	$	1,161,756		(0.4)%
Debt, proportionate interest ^1 2	$	1,361,832	$	1,369,053		(0.5)%
Net asset value per unit	$	13.77	$	13.97		(1.4)%
Number of properties ^2		116		117		(0.9)%
Portfolio occupancy^2		94.6%		94.7%		(0.1)%
Debt / GBV ratio		52.0%		52.0%		—%
^(1) Refer to “Non-IFRS Measures” section below. (2) Includes the REIT's share of joint venture investments.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 am ET on November 6, 2024 to discuss the results and ongoing business initiatives of the REIT.

The conference call can be accessed dialing [phone] or 1 [phone]. Additionally, the conference call will be available via simultaneous audio found at https://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=38F10948-4142-4C56-A49C-7912FF4A5BCA&LangLocaleID=1033. A replay will be accessible until November 20, 2024 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 79701#) approximately two hours after the live event.

About Slate Grocery REIT (TSX: SGR.U / SGR.UN)

Slate Grocery REIT is an owner and operator of U.S. grocery-anchored real estate. The REIT owns and operates approximately $2.4 billion of critical real estate infrastructure across major U.S. metro markets that communities rely upon for their everyday needs. The REIT’s resilient grocery-anchored portfolio and strong credit tenants provide unitholders with durable cash flows and the potential for capital appreciation over the longer term. Visit slategroceryreit.com to learn more about the REIT.

About Slate Asset Management

Slate Asset Management is a global alternative investment platform. We focus on fundamentals with the objective of creating long-term value for our investors and partners. Slate’s platform focuses on four areas of real assets, including real estate equity, real estate credit, real estate securities, and infrastructure. 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, and follow Slate Asset Management on LinkedIn, X (Twitter), and Instagram.

Supplemental Information

All interested parties can access Slate Grocery’s Supplemental Information online at slategroceryreit.com in the Investors section. These materials are also available on SEDAR+ or upon request to the REIT at [e-mail] or [phone].

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”, "forecasts", “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. Management believes that the expectations reflected in its forward-looking statements are based upon reasonable assumptions, however, management can give no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. 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

This news release and accompanying financial statements are based on International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

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, AFFO, AFFO payout ratio, 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 expenses, prior to straight-line rent, IFRIC 21, Levies ("IFRIC 21") property tax adjustments and adjustments for equity investments. Same-property NOI includes those properties owned by the REIT for each of the current period and the relevant comparative period, excluding those properties under development.
• FFO is defined as net income adjusted for certain items including transaction/disposition costs, change in fair value of properties, change in fair value of financial instruments, deferred income taxes, unit income (expense), adjustments for equity investments and IFRIC 21 property tax adjustments.
• AFFO is defined as FFO adjusted for straight-line rental revenue and revenue sustaining capital, leasing costs and tenant improvements.
• FFO payout ratio and AFFO payout ratio are defined as distributions declared divided by FFO and AFFO, respectively.
• FFO per WA unit and AFFO per WA unit are defined as FFO and AFFO divided by the weighted average class U equivalent units outstanding, respectively.
• Adjusted EBITDA is defined as NOI less general and administrative expenses.
• Interest coverage ratio is defined as adjusted EBITDA divided by cash interest paid.
• Net asset value is defined as the aggregate of the carrying value of the REIT's equity, deferred income taxes and exchangeable units of subsidiaries.
• Proportionate interest represents financial information adjusted to reflect the REIT's equity accounted joint ventures and financial real estate assets and its share of net income (losses) from equity accounted joint ventures and financial real estate assets on a proportionately consolidated basis at the REIT's ownership percentage of the related investment.

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. 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.

SGR-FR

Calculation and Reconciliation of Non-IFRS Measures

The table below summarizes a calculation of non-IFRS measures based on IFRS financial information
	Three months ended September 30,
(in thousands of U.S. dollars, except per unit amounts)		2024		2023
Rental revenue	$	52,325	$	50,629
Straight-line rent revenue		(110)		(391)
Property operating expenses		(8,742)		(8,830)
IFRIC 21 property tax adjustment		(6,778)		(6,532)
Contribution from joint venture investments		5,202		5,306
NOI^1 2	$	41,897	$	40,182
Cash flow from operations	$	18,221	$	22,978
Changes in non-cash working capital items		975		(4,639)
Disposition costs		8		—
Finance charge and mark-to-market adjustments		(425)		(435)
Interest, net and TIF note adjustments		72		39
Adjustments for joint venture investments		1,912		2,851
Non-controlling interest		(3,654)		(3,623)
Taxes on dispositions		38		—
Capital expenditures		(1,451)		(1,516)
Leasing costs		(678)		(759)
Tenant improvements		(715)		(998)
AFFO^1 2	$	14,303	$	13,061
Net income^2	$	7,248	$	12,370
Change in fair value of financial instruments		3,606		782
Disposition costs		8		—
Change in fair value of properties		11,395		9,621
Deferred income tax expense		1,845		1,583
Unit expense (income)		3,077		(1,685)
Adjustments for joint venture investments		1,476		4,584
Non-controlling interest		(4,363)		(4,394)
Taxes on dispositions		38		—
IFRIC 21 property tax adjustment		(6,778)		(6,532)
FFO^1 2	$	17,552	$	16,329
Straight-line rental revenue		(110)		(391)
Capital expenditures		(1,451)		(1,516)
Leasing costs		(678)		(759)
Tenant improvements		(715)		(998)
Adjustments for joint venture investments		(1,004)		(375)
Non-controlling interest		709		771
AFFO^1 2	$	14,303	$	13,061
^(1) Refer to “Non-IFRS Measures” section above. (2) Includes the REIT's share of joint venture investments.
	Three months ended September 30,
(in thousands of U.S. dollars, except per unit amounts)		2024		2023
NOI^1 2	$	41,897	$	40,182
General and administrative expenses		(3,988)		(3,935)
Cash interest, net		(13,501)		(12,419)
Finance charge and mark-to-market adjustments		(425)		(435)
Current income tax recovery (expense)		108		(981)
Adjustments for joint venture investments		(3,290)		(2,455)
Non-controlling interest		(3,654)		(3,623)
Capital expenditures		(1,451)		(1,516)
Leasing costs		(678)		(759)
Tenant improvements		(715)		(998)
AFFO^1 2	$	14,303	$	13,061
^(1) Refer to “Non-IFRS Measures” section above. (2) Includes the REIT's share of joint venture investments.

	Three months ended September 30,
(in thousands of U.S. dollars, except per unit amounts)		2024		2023
Net income ^1	$	7,248	$	12,370
Interest and finance costs		13,926		12,854
Change in fair value of financial instruments		3,606		782
Disposition costs		8		—
Change in fair value of properties		11,395		9,621
Deferred income tax expense		1,845		1,583
Current income tax (recovery) expense		(70)		981
Unit expense (income)		3,077		(1,685)
Adjustments for joint venture investments		3,762		6,664
Straight-line rent revenue		(110)		(391)
IFRIC 21 property tax adjustment		(6,778)		(6,532)
Adjusted EBITDA^1 2	$	37,909	$	36,247
NOI^1 2		41,897		40,182
General and administrative expenses ^1 2		(3,988)		(3,935)
Adjusted EBITDA^1 2	$	37,909	$	36,247
Cash interest paid		(13,573)		(12,458)
Interest coverage ratio^1 2	2.79x		2.91x
^(1) Includes the REIT's share of joint venture investments. (2) Refer to “Non-IFRS Measures” section above.

	September 30, 2024						December 31, 2023
(in thousands of U.S. dollars, except per unit amounts)	Statement of Financial Position		Joint Venture Investments		Proportionate Share (Non-IFRS)		Statement of Financial Position		Joint Venture Investments		Proportionate Share (Non-IFRS)
ASSETS
Non-current assets
Properties	$	2,052,522	$	309,900	$	2,362,422	$	2,062,599	$	307,300	$	2,369,899
Joint venture investments		111,191		(111,191)		—		107,101		(107,101)		—
Interest rate swaps		—		—		—		7,652		580		8,232
Other assets		361		—		361		718		4,268		4,986
	$	2,164,074	$	198,709	$	2,362,783	$	2,178,070	$	205,047	$	2,383,117
Current assets
Cash		19,648		4,916		24,564		23,587		4,420		28,007
Accounts receivable		22,396		1,809		24,205		22,172		1,813		23,985
Other assets		6,342		5,554		11,896		6,985		—		6,985
Prepaids		7,632		1,534		9,166		4,984		1,049		6,033
Interest rate swaps		3,106		290		3,396		—		—		—
	$	59,124	$	14,103	$	73,227	$	57,728	$	7,282	$	65,010
Total assets	$	2,223,198	$	212,812	$	2,436,010	$	2,235,798	$	212,329	$	2,448,127
LIABILITIES
Non-current liabilities
Debt	$	554,938	$	162,089	$	717,027	$	859,637	$	205,831	$	1,065,468
Interest rate swaps		2,349		—		2,349		—		—		—
Deferred income taxes		150,039		2		150,041		146,651		2		146,653
Other liabilities		3,924		169		4,093		4,346		482		4,828
	$	711,250	$	162,260	$	873,510	$	1,010,634	$	206,315	$	1,216,949
Current liabilities
Debt		602,154		42,651		644,805		302,119		1,466		303,585
Accounts payable and accrued liabilities		46,096		7,901		53,997		43,217		4,548		47,765
Exchangeable units of subsidiaries		9,433		—		9,433		8,269		—		8,269
Distributions payable		4,323		—		4,323		4,323		—		4,323
	$	662,006	$	50,552	$	712,558	$	357,928	$	6,014	$	363,942
Total liabilities	$	1,373,256	$	212,812	$	1,586,068	$	1,368,562	$	212,329	$	1,580,891
EQUITY
Unitholders' equity	$	671,820	$	—	$	671,820	$	687,443	$	—	$	687,443
Non-controlling interest		178,122		—		178,122		179,793		—		179,793
Total equity	$	849,942	$	—	$	849,942	$	867,236	$	—	$	867,236
Total liabilities and equity	$	2,223,198	$	212,812	$	2,436,010	$	2,235,798	$	212,329	$	2,448,127