TORONTO--(BUSINESS WIRE)--Slate Office REIT (TSX: SOT.UN) (the "REIT") reported today financial results for the three months ended March 31, 2020.
“The REIT delivered solid results in the first quarter of 2020 highlighted by strong leasing, at significant spreads and continued deleveraging,” said Scott Antoniak, Chief Executive Officer of Slate Office REIT. “Our portfolio, comprised of quality office assets and tenants, was assembled to provide stability in challenging times like these and its resilience has never been more apparent. As we continue to navigate through the COVID-19 pandemic, we are pleased to have collected 97% of rents in cash within the month of April, highlighting the quality of our tenant base and durability of our cash flows.”
For the CEO’s letter to unitholders for the quarter, please follow the link here.
First Quarter 2020 Highlights
- Strong leasing activity: The REIT completed a total of 304,571 square feet of leasing in the first quarter, comprised of 108,663 square feet of new lease deals. Notable new leasing includes approximately 40,000 square feet at 2599 Speakman Drive in Mississauga, Ontario which was leased to a government tenant for a term of 10 years and approximately 38,000 square feet at 120 South LaSalle in Chicago, Illinois for a term of 11 years.
- Positive leasing spreads: Leasing spreads in the quarter were 28.6% above expiring or in-place building rents. Renewals were 33.4% above expiring rents while new deals were 21.5% above in-place building rents.
- Update on Maritime Centre: The REIT refinanced the Maritime Centre in Halifax, Nova Scotia with a leading global financial institution on April 2, 2020. The refinancing is comprised of a $62.5 million mortgage and a $12.6 million construction facility for a term of 5 years with interest-only payments at a fixed rate of 2.8%. This transaction provides the REIT with $19.7 million of additional liquidity. Since acquisition, the REIT has driven rent growth by 26% and increased occupancy by 24%.
- Loan-to-value: The REIT’s loan-to-value (“LTV”) ratio improved to 58.3% at March 31, 2020 from 58.7% at December 31, 2019, an improvement of 0.4%.
- Core-FFO: Core funds from operations (“Core-FFO”) was $13.1 million or $0.18 per unit for the first quarter of 2020.
- AFFO and AFFO payout ratio: Adjusted funds from operations (“AFFO”) payout ratio was $11.2 million or $0.15 per unit for the first quarter of 2020. The AFFO payout ratio for the first quarter of 2020 was 65.3%.
Update on Previously Announced Acquisition
The REIT provides the following update on the agreement announced on March 9, 2020 pursuant to which the REIT would acquire Cypress Financial Center in Fort Lauderdale, Florida for U.S.$45.5 million, subject to customary closing conditions. This acquisition will not proceed as certain of the conditions to closing were not satisfied. Management, in consultation with the Board of Trustees, will continue to evaluate all capital allocation alternatives available to the REIT with a focus on maximizing returns for unitholders.
Update on COVID-19
The REIT's top priority continues to be the safety and well-being of its team and tenants. As such, the REIT has implemented business continuity plans, health and safety protocols and has maintained open lines of communication with tenants regarding health recommendations and modifications to operating protocols.
Active communication with stakeholders is critical to stay apprised of developments and to manage and mitigate risks from COVID-19. These stakeholder communications include but are not limited to lenders, property managers, legal counsel, insurance brokers, the REIT's Board of Trustees and government agencies.
Approximately 61% of the REIT’s portfolio is comprised of government or credit rated tenants. The quality of the REIT's assets and tenancy has resulted in strong collections and low rent deferrals in April 2020 as compared to most of its peers. The REIT collected 97% of rents in cash in April with the residual to be collected through short-term rent deferral programs.
On April 16, 2020, the Government of Canada announced the Canada Emergency Commercial Rent Assistance (CECRA) program which will be introduced to assist small businesses in meeting rent obligations through forgivable loans and rent forgiveness by commercial landlords. The REIT continues to monitor the developments of this program in advance of its introduction and will assess the applicability of this program on a tenant by tenant basis.
Summary of Q1 2020 Results
|
Three months ended March 31, |
|||||||
(thousands of dollars, except per unit amounts) |
2020 |
2019 |
Change % |
|||||
Rental revenue |
$ |
49,694 |
|
$ |
57,200 |
|
(13.1 |
)% |
Net operating income |
$ |
22,995 |
|
$ |
27,043 |
|
(15.0 |
)% |
Net (loss) income |
$ |
(14,906 |
) |
$ |
5,919 |
|
(351.8 |
)% |
Same-property NOI |
$ |
22,831 |
|
$ |
23,539 |
|
(3.0 |
)% |
Weighted average diluted number of trust units (000s) |
73,278 |
|
75,247 |
|
(2.6 |
)% |
||
Funds from operations ("FFO") |
$ |
12,408 |
|
$ |
13,543 |
|
(8.4 |
)% |
FFO per unit |
$ |
0.17 |
|
$ |
0.18 |
|
(5.6 |
)% |
FFO payout ratio |
58.9 |
% |
87.8 |
% |
(28.9 |
)% |
||
Core FFO |
$ |
13,054 |
|
$ |
14,150 |
|
(7.7 |
)% |
Core FFO per unit |
$ |
0.18 |
|
$ |
0.19 |
|
(5.3 |
)% |
Core FFO payout ratio |
56.0 |
% |
84.0 |
% |
(28.0 |
)% |
||
AFFO |
$ |
11,189 |
|
$ |
11,766 |
|
(4.9 |
)% |
AFFO per unit |
$ |
0.15 |
|
$ |
0.16 |
|
(6.3 |
)% |
AFFO payout ratio |
65.3 |
% |
101.1 |
% |
(35.8 |
)% |
||
|
|
|
|
|||||
|
March 31, 2020 |
December 31, 2019 |
Change % |
|||||
Total assets |
$ |
1,700,643 |
|
$ |
1,709,964 |
|
(0.5 |
)% |
Total debt |
$ |
991,057 |
|
$ |
1,001,947 |
|
(1.1 |
)% |
Portfolio occupancy 1 |
86.5 |
% |
87.1 |
% |
(0.6 |
)% |
||
Loan to value ratio |
58.3 |
% |
58.7 |
% |
(0.4 |
)% |
||
Net debt to adjusted EBITDA leverage 2 |
10.4 |
x | 10.1 |
x | 0.3 |
x | ||
Interest coverage ratio 2 |
2.2 |
x | 2.2 |
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 Thursday, May 14, 2020 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/2020/0514. A replay will be accessible until May 28, 2020 via the REIT's website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 2557835) 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 36 strategic and well positioned real estate assets located primarily across Canada's major population centres and includes two downtown assets in Chicago, Illinois. 61% of the REIT’s portfolio is comprised of government or credit rated tenants. 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 $6.5 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 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 vale of financial instruments, disposition 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.
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, |
|||||
|
2020 |
2019 |
||||
Revenue |
$ |
49,694 |
|
$ |
57,200 |
|
Property operating expenses |
(34,815 |
) |
(37,604 |
) |
||
IFRIC 21 property tax adjustment 1 |
7,169 |
|
7,097 |
|
||
Straight-line rents and other changes |
947 |
|
350 |
|
||
Net operating income |
$ |
22,995 |
|
$ |
27,043 |
|
|
|
|
||||
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) |
2020 |
2019 |
||||
Net (loss) income |
$ |
(14,906 |
) |
$ |
5,919 |
|
Add (deduct): |
|
|
||||
Leasing costs amortized to revenue |
1,623 |
|
1,212 |
|
||
Change in fair value of properties |
(2,929 |
) |
(6,243 |
) |
||
IFRIC 21 property tax adjustment |
7,169 |
|
7,097 |
|
||
Change in fair value of financial instruments |
31,860 |
|
3,334 |
|
||
Disposition costs |
419 |
|
349 |
|
||
Depreciation of hotel asset |
262 |
|
239 |
|
||
Deferred income tax (recovery) expense |
(96 |
) |
59 |
|
||
Change in fair value of Class B LP units |
(11,522 |
) |
740 |
|
||
Distributions to Class B unitholders |
528 |
|
837 |
|
||
FFO 1 |
$ |
12,408 |
|
$ |
13,543 |
|
Finance income on finance lease receivable |
(879 |
) |
(918 |
) |
||
Finance lease payments received |
1,525 |
|
1,525 |
|
||
Core-FFO 1 |
$ |
13,054 |
|
$ |
14,150 |
|
Amortization of deferred transaction costs |
670 |
|
854 |
|
||
Amortization of debt mark-to-market adjustments |
(58 |
) |
(97 |
) |
||
Amortization of straight-line rent |
(676 |
) |
(862 |
) |
||
Interest rate subsidy |
108 |
|
108 |
|
||
Guaranteed income supplements |
296 |
|
282 |
|
||
Normalized direct leasing and capital costs |
(2,205 |
) |
(2,669 |
) |
||
AFFO 1 |
$ |
11,189 |
|
$ |
11,766 |
|
|
|
|
||||
Weighted average number of diluted units outstanding (000s) |
73,278 |
|
75,247 |
|
||
FFO per unit 1 |
$ |
0.17 |
|
$ |
0.18 |
|
Core-FFO per unit 1 |
0.18 |
|
0.19 |
|
||
AFFO per unit 1 |
0.15 |
|
0.16 |
|
||
FFO payout ratio 1 |
58.9 |
% |
87.8 |
% |
||
Core-FFO payout ratio 1 |
56.0 |
% |
84.0 |
% |
||
AFFO payout ratio 1 |
65.3 |
% |
101.1 |
% |
||
(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 March 31, |
|||||
|
2020 |
2019 |
||||
Cash flow from operating activities |
$ |
7,774 |
|
$ |
19,985 |
|
Add (deduct): |
|
|
||||
Leasing costs amortized to revenue |
1,623 |
|
1,212 |
|
||
Disposition costs |
419 |
|
349 |
|
||
Working capital items |
3,623 |
|
(7,887 |
) |
||
Straight-line rent and other changes |
(947 |
) |
(350 |
) |
||
Interest and other finance costs |
(10,322 |
) |
(13,454 |
) |
||
Interest paid |
9,710 |
|
12,697 |
|
||
Distributions paid to Class B unitholders |
528 |
|
991 |
|
||
FFO 1 |
$ |
12,408 |
|
$ |
13,543 |
|
Finance income on finance lease receivable |
(879 |
) |
(918 |
) |
||
Finance lease payments received |
1,525 |
|
1,525 |
|
||
Core-FFO 1 |
$ |
13,054 |
|
$ |
14,150 |
|
Amortization of deferred transaction costs |
670 |
|
854 |
|
||
Amortization of debt mark-to-market adjustments |
(58 |
) |
(97 |
) |
||
Amortization of straight-line rent |
(676 |
) |
(862 |
) |
||
Interest rate subsidy |
108 |
|
108 |
|
||
Guaranteed income supplements |
296 |
|
282 |
|
||
Normalized direct leasing and capital costs |
(2,205 |
) |
(2,669 |
) |
||
AFFO 1 |
$ |
11,189 |
|
$ |
11,766 |
|
(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, |
|||||
|
2020 |
2019 |
||||
Net income |
$ |
41,616 |
|
$ |
75,152 |
|
Straight line rent and other changes |
2,936 |
|
(217 |
) |
||
Interest income |
(608 |
) |
(339 |
) |
||
Interest and finance costs |
45,856 |
|
48,991 |
|
||
Change in fair value of properties |
(29,424 |
) |
(30,761 |
) |
||
IFRIC 21 property tax adjustment |
72 |
|
7,097 |
|
||
Change in fair value of financial instruments |
31,236 |
|
5,981 |
|
||
Distributions to Class B shareholders |
2,112 |
|
3,810 |
|
||
Disposition costs |
12,212 |
|
2,542 |
|
||
Depreciation of hotel asset |
1,023 |
|
964 |
|
||
Change in fair value of Class B LP units |
(12,896 |
) |
(7,981 |
) |
||
Deferred income tax recovery |
675 |
|
128 |
|
||
Adjusted EBITDA 1 |
$ |
94,810 |
|
$ |
105,367 |
|
(1) Refer to "Non-IFRS measures" section above. |
||||||
The calculation of net debt is as follows:
|
March 31, 2020 |
March 31, 2019 |
||||
Debt, non-current |
$ |
509,666 |
|
$ |
922,549 |
|
Debt, current |
481,391 |
|
259,072 |
|
||
Debt |
$ |
991,057 |
|
$ |
1,181,621 |
|
Less: cash on hand |
6,369 |
|
4,678 |
|
||
Net debt |
$ |
984,688 |
|
$ |
1,176,943 |
|
The calculation of net debt to adjusted EBITDA is as follows:
|
Trailing twelve months ended March 31, |
|||||
|
2020 |
2019 |
||||
Debt |
991,057 |
|
1,181,621 |
|
||
Less: cash on hand |
6,369 |
|
4,678 |
|
||
Net debt |
$ |
984,688 |
|
$ |
1,176,943 |
|
Adjusted EBITDA 1 |
94,810 |
|
105,367 |
|
||
Net debt to adjusted EBITDA 2 |
10.4 |
x |
11.2 |
x |
||
(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, |
|||||
|
2020 |
2019 |
||||
Adjusted EBITDA 1 |
$ |
94,810 |
|
$ |
105,367 |
|
Interest expense |
42,413 |
|
46,329 |
|
||
Interest coverage ratio 1 |
2.2x |
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 March 31, 2020 and December 31, 2019:
|
March 31, 2020 |
December 31, 2019 |
||||
Equity |
$ |
610,035 |
|
$ |
627,305 |
|
Class B LP units |
19,396 |
|
30,918 |
|
||
Deferred unit liability |
552 |
|
742 |
|
||
Deferred tax liability (asset) |
— |
|
92 |
|
||
IFRS net asset value |
$ |
629,983 |
|
$ |
659,057 |
|
|
|
|
||||
Diluted number of units outstanding 1 |
73,201 |
|
73,291 |
|
||
IFRS net asset value per unit |
$ |
8.61 |
|
$ |
8.99 |
|
(1) Represents the fully diluted number of units outstanding and includes outstanding REIT units, DUP units and Class B LP units. |
||||||
