TORONTO--(BUSINESS WIRE)--Slate Office REIT (TSX: SOT.UN) (the "REIT"), an owner and operator of North American office real estate, reported today financial results for the three and six months ended June 30, 2020.
“We continue to be pleased with the stability of the REIT’s cash flows and operating performance during the COVID-19 pandemic,” said Steve Hodgson, Chief Executive Officer of Slate Office REIT. “The credit quality of the REIT’s tenant base and the strength of our team have been critical in driving our industry leading rent collections since the beginning of April 2020. We are encouraged by the positive trends that we are seeing in our markets with respect to re-opening and are continuing to work with our partners to facilitate the responsible re-entry into our properties.”
For the CEO’s letter to unitholders for the quarter, please follow the link here.
Second Quarter 2020 Highlights
- Strong cash rent collections: The REIT collected 96% to 97% of rent in cash within each month of the second quarter and expects to substantially collect the residual rent through short-term deferral programs.
- Positive leasing spreads: Leasing spreads in the quarter were 13.9% above expiring or in-place building rents. Renewals were 14.7% above expiring rents while new deals were 8.6% above in-place building rents.
- Continued leasing activity: The REIT completed 103,827 square feet of leasing in the second quarter, comprised of 90,214 square feet of renewals and 13,613 square feet of new lease deals. The most notable renewal was approximately 29,000 square feet with a national accountancy and advisory firm at Gateway Centre for a 10 year term.
- Same-property net operating income (“NOI”): Removing the impact of the REIT's hotel asset and lease termination income received, the REIT's same-property NOI increased $0.3 million or 1.2% for the three months ended June 30, 2020 compared to the same period in 2019. Including the impact of the REIT's hotel asset and lease termination income received, same-property NOI decreased by $1.2 million or 4.8%.
- Core-FFO: Core funds from operations (“Core-FFO”) was $13.4 million or $0.18 per unit for the second quarter of 2020.
- AFFO and AFFO payout ratio: Adjusted funds from operations (“AFFO”) was $11.8 million or $0.16 per unit for the second quarter of 2020. The AFFO payout ratio for the second quarter of 2020 was 61.9%.
Summary of Q2 2020 Results
|
Three months ended June 30, |
|||||||
(thousands of dollars, except per unit amounts) |
2020 |
2019 |
Change % |
|||||
Rental revenue |
$ |
44,604 |
|
$ |
54,452 |
|
(18.1 |
)% |
Net operating income |
$ |
23,411 |
|
$ |
26,384 |
|
(11.3 |
)% |
Net (loss) income |
$ |
5,689 |
|
$ |
9,514 |
|
(40.2 |
)% |
Same-property NOI |
$ |
23,357 |
|
$ |
24,523 |
|
(4.8 |
)% |
Weighted average diluted number of trust units (000s) |
73,203 |
|
74,093 |
|
(1.2 |
)% |
||
Funds from operations ("FFO") |
$ |
12,735 |
|
$ |
13,103 |
|
(2.8 |
)% |
FFO per unit |
$ |
0.17 |
|
$ |
0.18 |
|
(5.6 |
)% |
FFO payout ratio |
57.3 |
% |
56.2 |
% |
1.1 |
% |
||
Core FFO |
$ |
13,413 |
|
$ |
13,719 |
|
(2.2 |
)% |
Core FFO per unit |
$ |
0.18 |
|
$ |
0.19 |
|
(5.3 |
)% |
Core FFO payout ratio |
54.4 |
% |
53.7 |
% |
0.7 |
% |
||
AFFO |
$ |
11,787 |
|
$ |
12,193 |
|
(3.3 |
)% |
AFFO per unit |
$ |
0.16 |
|
$ |
0.16 |
|
— |
% |
AFFO payout ratio |
61.9 |
% |
60.4 |
% |
1.5 |
% |
||
|
|
|
|
|||||
|
June 30, 2020 |
December 31, 2019 |
Change % |
|||||
Total assets |
$ |
1,695,859 |
|
$ |
1,709,964 |
|
(0.8 |
)% |
Total debt |
$ |
987,461 |
|
$ |
1,001,947 |
|
(1.4 |
)% |
Portfolio occupancy 1 |
86.8 |
% |
87.1 |
% |
(0.3 |
)% |
||
Loan to value ratio |
58.3 |
% |
58.7 |
% |
(0.4 |
)% |
||
Net debt to adjusted EBITDA 2 |
10.6x |
10.1x |
0.6x |
|||||
Interest coverage ratio 2 |
2.3x |
2.2x |
0.1x |
|||||
(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 Friday, July 31, 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/2020/0731. A replay will be accessible until August 14, 2020 via the REIT's website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 9997944) approximately two hours after the live event.
About Slate Office REIT (TSX: SOT.UN)
Slate Office REIT owns interests in and operates 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 approximately $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 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 June 30, |
|||||
|
2020 |
2019 |
||||
Revenue |
$ |
44,604 |
|
$ |
54,452 |
|
Property operating expenses |
(20,365 |
) |
(26,468 |
) |
||
IFRIC 21 property tax adjustment 1 |
(2,576 |
) |
(2,212 |
) |
||
Straight-line rents and other changes |
1,748 |
|
612 |
|
||
Net operating income |
$ |
23,411 |
|
$ |
26,384 |
|
|
|
|
||||
The reconciliation of net income to FFO, Core-FFO and AFFO is as follows: |
||||||
|
|
|
||||
|
Three months ended June 30, |
|||||
(thousands of dollars, except per unit amounts) |
2020 |
2019 |
||||
Net (loss) income |
$ |
5,689 |
|
$ |
9,514 |
|
Add (deduct): |
|
|
||||
Leasing costs amortized to revenue |
1,892 |
|
1,331 |
|
||
Change in fair value of properties |
1,777 |
|
(8,384 |
) |
||
IFRIC 21 property tax adjustment 1 |
(2,576 |
) |
(2,212 |
) |
||
Change in fair value of financial instruments |
4,070 |
|
5,799 |
|
||
Transaction costs |
1,146 |
|
7,861 |
|
||
Depreciation of hotel asset |
262 |
|
247 |
|
||
Deferred income tax (recovery) expense |
— |
|
(313 |
) |
||
Change in fair value of Class B LP units |
(53 |
) |
(1,268 |
) |
||
Distributions to Class B unitholders |
528 |
|
528 |
|
||
FFO 2 |
$ |
12,735 |
|
$ |
13,103 |
|
Finance income on finance lease receivable |
(869 |
) |
(909 |
) |
||
Finance lease payments received |
1,547 |
|
1,525 |
|
||
Core-FFO 2 |
$ |
13,413 |
|
$ |
13,719 |
|
Amortization of deferred transaction costs |
634 |
|
1,648 |
|
||
Amortization of debt mark-to-market adjustments |
(58 |
) |
(50 |
) |
||
Amortization of straight-line rent |
(144 |
) |
(719 |
) |
||
Interest rate subsidy |
108 |
|
108 |
|
||
Guaranteed income supplements |
— |
|
285 |
|
||
Normalized direct leasing and capital costs |
(2,166 |
) |
(2,798 |
) |
||
AFFO 2 |
$ |
11,787 |
|
$ |
12,193 |
|
|
|
|
||||
Weighted average number of diluted units outstanding (000s) |
73,203 |
|
74,093 |
|
||
FFO per unit 2 |
$ |
0.17 |
|
$ |
0.18 |
|
Core-FFO per unit 2 |
0.18 |
|
0.19 |
|
||
AFFO per unit 2 |
0.16 |
|
0.16 |
|
||
FFO payout ratio 2 |
57.3 |
% |
56.2 |
% |
||
Core-FFO payout ratio 2 |
54.4 |
% |
53.7 |
% |
||
AFFO payout ratio 2 |
61.9 |
% |
60.4 |
% |
||
(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 June 30, |
|||||
|
2020 |
2019 |
||||
Cash flow from operating activities |
$ |
11,794 |
|
$ |
(5,881 |
) |
Add (deduct): |
|
|
||||
Leasing costs amortized to revenue |
1,892 |
|
1,331 |
|
||
Transaction costs |
1,146 |
|
7,861 |
|
||
Working capital items |
(301 |
) |
11,474 |
|
||
Straight-line rent and other changes |
(1,748 |
) |
(612 |
) |
||
Interest and other finance costs |
(9,961 |
) |
(13,156 |
) |
||
Interest paid |
9,385 |
|
11,558 |
|
||
Distributions paid to Class B unitholders |
528 |
|
528 |
|
||
FFO 1 |
$ |
12,735 |
|
$ |
13,103 |
|
Finance income on finance lease receivable |
(869 |
) |
(909 |
) |
||
Finance lease payments received |
1,547 |
|
1,525 |
|
||
Core-FFO 1 |
$ |
13,413 |
|
$ |
13,719 |
|
Amortization of deferred transaction costs |
634 |
|
1,648 |
|
||
Amortization of debt mark-to-market adjustments |
(58 |
) |
(50 |
) |
||
Amortization of straight-line rent |
(144 |
) |
(719 |
) |
||
Interest rate subsidy |
108 |
|
108 |
|
||
Guaranteed income supplements |
— |
|
285 |
|
||
Normalized direct leasing and capital costs |
(2,166 |
) |
(2,798 |
) |
||
AFFO 1 |
$ |
11,787 |
|
$ |
12,193 |
|
(1) Refer to "Non-IFRS measures" section above. |
||||||
The calculation of trailing twelve month adjusted EBITDA is as follows:
|
Trailing twelve months ended June 30, |
|||||
|
2020 |
2019 |
||||
Net income |
$ |
37,791 |
|
$ |
61,074 |
|
Straight line rent and other changes |
4,072 |
|
277 |
|
||
Interest income |
(593 |
) |
(444 |
) |
||
Interest and finance costs |
42,661 |
|
52,053 |
|
||
Change in fair value of properties |
(19,263 |
) |
(28,610 |
) |
||
IFRIC 21 property tax adjustment 1 |
(292 |
) |
1,627 |
|
||
Change in fair value of financial instruments |
29,507 |
|
11,896 |
|
||
Distributions to Class B shareholders |
2,112 |
|
3,347 |
|
||
Transaction costs |
5,497 |
|
10,403 |
|
||
Depreciation of hotel asset |
1,038 |
|
983 |
|
||
Change in fair value of Class B LP units |
(11,681 |
) |
(9,249 |
) |
||
Deferred income tax recovery |
988 |
|
(490 |
) |
||
Adjusted EBITDA 2 |
$ |
91,837 |
|
$ |
102,867 |
|
(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:
|
June 30, 2020 |
June 30, 2019 |
||||
Debt, non-current |
$ |
407,414 |
|
$ |
869,462 |
|
Debt, current |
580,047 |
|
194,891 |
|
||
Debt |
$ |
987,461 |
|
$ |
1,064,353 |
|
Less: cash on hand |
11,354 |
|
6,019 |
|
||
Net debt |
$ |
976,107 |
|
$ |
1,058,334 |
|
The calculation of net debt to adjusted EBITDA is as follows:
|
Trailing twelve months ended June 30, |
|||||
|
2020 |
2019 |
||||
Debt |
$ |
987,461 |
|
$ |
1,064,353 |
|
Less: cash on hand |
11,354 |
|
6,019 |
|
||
Net debt |
$ |
976,107 |
|
$ |
1,058,334 |
|
Adjusted EBITDA 1 |
91,837 |
|
102,867 |
|
||
Net debt to adjusted EBITDA 2 |
10.6 |
x |
10.3 |
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 June 30, |
|||||
|
2020 |
2019 |
||||
Adjusted EBITDA 1 |
$ |
91,837 |
|
$ |
102,867 |
|
Interest expense |
40,240 |
|
48,212 |
|
||
Interest coverage ratio 1 |
2.3x |
2.1x |
||||
(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 June 30, 2020 and December 31, 2019:
|
June 30, 2020 |
December 31, 2019 |
||||
Equity |
$ |
603,296 |
|
$ |
627,305 |
|
Class B LP units |
19,343 |
|
30,918 |
|
||
Deferred unit liability |
638 |
|
742 |
|
||
Deferred tax liability (asset) |
— |
|
92 |
|
||
IFRS net asset value |
$ |
623,277 |
|
$ |
659,057 |
|
|
|
|
||||
Diluted number of units outstanding 1 |
73,225 |
|
73,291 |
|
||
IFRS net asset value per unit |
$ |
8.51 |
|
$ |
8.99 |
|
(1) Represents the fully diluted number of units outstanding and includes outstanding REIT units, DUP units and Class B LP units. |
||||||
