Slate Grocery REIT Reports Fourth Quarter and Year End 2020 Results Including Record Annual Leasing Performance and Occupancy Gains

(All amounts are expressed in U.S. dollars unless otherwise stated)

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 twelve months ended December 31, 2020.

"Slate Grocery REIT’s strong operating performance continued in the fourth quarter of 2020 with further occupancy gains and robust leasing activity,” said David Dunn, Chief Executive Officer. “In 2020, the REIT set annual records for both total and new leasing volumes, demonstrating the continued strong demand for grocery and essential real estate that facilitates the last mile of distribution to consumers. With the completion of our most recent refinancing and portfolio acquisition subsequent to quarter end, we are well positioned to advance our growth strategy in 2021.”

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

Highlights

• For the full year 2020, the REIT completed 1,691,634 square feet of leasing at a 6.1% weighted average rental spread, comprised of 1,319,504 square feet of renewals and 372,130 square feet of new leasing. The annual total and new leasing volumes both represent record performances for the REIT. In the fourth quarter, the REIT completed 480,738 square feet of leasing at a 2.7% weighted average rental spread, comprised of 444,915 square feet of renewals and 35,823 square feet of new leasing.
• Occupancy increased by 0.4% from the third quarter to 92.9%, highlighting the resiliency of the REIT’s essential tenancies and critical real estate infrastructure. The increase is due to 35,823 square feet of new leasing and the disposition of one property and two outparcels at certain properties which had a weighted average occupancy rate of 70.7%, partially offset by 60,414 square feet of lease expiries.
• The weighted average tenant retention rate for the fourth quarter was 92.9%. Since the beginning of 2016, the weighted average retention rate has been 92.1%.
• On December 10, 2020, the REIT completed a bought deal financing of 6.4 million class U units for gross proceeds of approximately $58.3 million or C$75.1 million. This financing reduces the REIT's indebtedness and provides further capacity to capitalize on attractive investment opportunities.
  
  Subsequent to year end, the REIT completed the acquisition of a portfolio of five grocery-anchored properties for $54.3 million ($137 per square foot), deploying proceeds from the capital raised from the December equity offering. These acquisitions contributed 396,471 square feet to the REIT's portfolio and further increase the REIT's concentration of grocery and essential tenants.

• Subsequent to quarter end, the REIT closed a $169.0 million mortgage loan with a 2031 maturity. The net proceeds from the loan were used to reduce the REIT's nearest term debt maturity in 2023 to $83.0 million, resulting in an increase of the REIT's debt portfolio to a weighted average term to maturity of 5.9 years.
• Since the start of the pandemic, the REIT has collected 96% of contractual rent. For the fourth quarter, the REIT has collected 96% of contractual rent. The REIT expects to substantially collect outstanding billings through immediate cash collection and deferral programs. As of December 31, 2020, the REIT has collected $1.0 million of payments under the deferral payback program, representing in excess of 100% of scheduled amounts owed to date. The REIT's total deferral payback program, amounting to $1.3 million, is expected to be substantially completed by April 2021, with 82% of the program completed as at year-end.
• On a year-to-date basis, the REIT has completed eight property and two outparcel dispositions for $133.6 million at a weighted average cap rate of 7.3% on trailing twelve-month net operating income ("NOI"). The REIT will seek to reinvest net proceeds into accretive investment opportunities that will strengthen the quality of the REIT’s portfolio and drive growth in NOI.
• Adjusting for termination fees, same-property NOI for the trailing twelve month period ended December 31, 2020 (comprised of 60 properties) increased by 0.6% over the same period in the prior year. Same-property NOI for the three month period ended December 31, 2020 (comprised of 61 properties) decreased by 0.9% over the comparative period in the prior year.
• Rental revenue for the fourth quarter was $31.9 million.
• Net income for the fourth quarter was $21.3 million.
• NOI for the fourth quarter was $22.6 million.
• Funds from operations ("FFO") was $11.7 million or $0.27 per weighted average unit for the fourth quarter of 2020.
• Adjusted funds from operations ("AFFO") was $9.7 million or $0.22 per weighted average unit for the fourth quarter of 2020.

COVID-19 Update

In response to the pandemic, Slate Asset Management (Canada) L.P. (the “Manager”), as manager of the REIT, has implemented a COVID-19 response plan, with employee and tenant safety as a top priority. This plan is intended to monitor and mitigate the business and health risks posed to the REIT and its stakeholders.

Appropriate operational planning and cost-control measures are in place to manage operational and financial risk. The REIT has mandated increased sanitation and health and safety measures at its properties. The REIT continues to monitor direction provided by the World Health Organization, public health authorities and federal and state governments in order to control the spread of COVID-19.

Management has assessed 65% of the REIT’s tenant portfolio comprises essential tenants, including grocery-anchored tenants, medical and personal services, financial institutions, and other essential based services. Rent is typically paid within the first 15 business days of each month. All of the REIT’s centers have remained open throughout the COVID-19 pandemic, with 99% of tenants currently in operation.

The REIT is well-positioned from a liquidity perspective to withstand any further negative impacts as a result of COVID-19, however, the REIT will continue to evaluate and monitor this as the situation endures.

	Three months ended December 31,
(in thousands of U.S. dollars, except per unit amounts)	2020			2019			Change %
Rental revenue		$	31,872		$	34,338		(7.2)	%
NOI^1		$	22,583		$	24,266		(6.9)	%
Net income ^2		$	21,268		$	14,016		51.7	%
Leasing – shop space		127,284			126,744			0.4	%
Leasing – anchor / junior anchor		353,454			22,472			1,472.9	%
Total leasing activity (square feet) ^2		480,738			149,216			222.2	%
Weighted average number of units outstanding ("WA units")		43,752			43,145			1.4	%
FFO^1 2		$	11,684		$	12,650		(7.6)	%
FFO per WA units^1 2		$	0.27		$	0.29		(6.9)	%
FFO payout ratio^1 2		81.7%			72.8%			8.9	%
AFFO ^1 2		$	9,651		$	10,616		(9.1)	%
AFFO per WA units^1 2		$	0.22		$	0.25		(12.0)	%
AFFO payout ratio^1 2		98.9%			86.8%			12.1	%
(in thousands of U.S. dollars)	2020			2019			Change %
Same-property NOI (3 month period, 61 properties)		$	18,961		$	19,139		(0.9)%
Same-property NOI (12 month period, 60 properties)		$	76,238		$	76,450		(0.3)%
	As at December 31,
(in thousands of U.S. dollars, except per unit amounts)	2020			2019			Change %
Total assets		$	1,323,554		$	1,315,080		0.6%
Total debt		$	726,373		$	789,395		(8.0)%
Net asset value per unit		$	10.95		$	11.29		(3.0)%
Number of properties ^2		75			76			(1.3)%
Portfolio occupancy^2		92.9%			93.0%			(0.1)%
Debt / GBV ratio		54.9%			60.0%			(5.1)%
Interest coverage ratio^1		2.45x			2.51x			(2.4)%
^(1) Refer to “Non-IFRS Measures” section below.
^(2) Includes the REIT's share of its equity accounted property investment.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 am ET on Wednesday, February 24, 2021 to discuss the results and ongoing business initiatives of the REIT.

The conference call can be accessed by dialing [phone] or 1 [phone]. Additionally, the conference call will be available via simultaneous audio found at www.snwebcastcenter.com/webcast/slate/2021/0224. A replay will be accessible until March 10, 2021 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 5756206) 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 U.S. $1.3 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 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 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”, “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. There can be no assurance regarding the impact of COVID-19 on the business, operations, and financial performance of the REIT and its tenants, as well as on consumer behaviors and the economy in general. 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 investment. 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 costs, change in fair value of properties, change in fair value of financial instruments, deferred income taxes, unit expense (income), adjustments for equity investment and IFRIC 21 property tax adjustments.
• AFFO is defined as FFO adjusted for straight-line rental revenue and 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.

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 December 31,
(in thousands of U.S. dollars, except per unit amounts)		2020		2019
Rental revenue		$	31,872	$	34,338
Straight-line rent revenue		(375)		(118)
Property operating expenses		(3,512)		(5,029)
IFRIC 21 property tax adjustment		(5,568)		(4,934)
Adjustments for equity investment		166		9
NOI^1 2		$	22,583	$	24,266
Cash flow from operations		$	8,049	$	9,533
Changes in non-cash working capital items		4,961		2,104
Transaction costs		803		1,331
Finance charge and mark-to-market adjustments		(398)		(410)
Interest, net and TIF note adjustments		33		42
Adjustments for equity investment		88		(68)
Taxes on dispositions		(2,227)		—
Capital expenditures		(839)		(568)
Leasing costs		(293)		(489)
Tenant improvements		(526)		(859)
AFFO^1 2		$	9,651	$	10,616
Net income^1 2		$	21,268	$	14,016
Change in fair value of financial instruments		437		(284)
Transaction costs		803		1,331
Change in fair value of properties		(13,515)		(3,015)
Deferred income tax expense		8,730		5,045
Adjustments for equity investment		217		(185)
Unit expense		1,539		676
Taxes on dispositions		(2,227)		—
IFRIC 21 property tax adjustment		(5,568)		(4,934)
FFO^1 2		$	11,684	$	12,650
Straight-line rental revenue		(375)		(118)
Capital expenditures		(839)		(568)
Leasing costs		(293)		(489)
Tenant improvements		(526)		(859)
AFFO^1 2		$	9,651	$	10,616
NOI^1 2		$	22,583	$	24,266
General and administrative expenses		(1,714)		(2,479)
Cash interest, net		(8,475)		(8,654)
Finance charge and mark-to-market adjustments		(398)		(410)
Adjustments for equity investment		(78)		(77)
Current income tax expense		(609)		(114)
Capital expenditures		(839)		(568)
Leasing costs		(293)		(489)
Tenant improvements		(526)		(859)
AFFO^1 2		$	9,651	$	10,616
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of its equity accounted property investment.

	Three months ended December 31,
(in thousands of U.S. dollars, except per unit amounts)		2020		2019
Net income ^2		$	21,268	$	14,016
Interest and financing costs		8,873		9,064
Change in fair value of financial instruments		437		(284)
Transaction costs		803		1,331
Change in fair value of properties		(13,515)		(3,015)
Deferred income tax expense		8,730		5,045
Current income tax expense		(1,618)		114
Unit expense		1,539		676
Adjustments for equity investment		295		(108)
Straight-line rent revenue		(375)		(118)
IFRIC 21 property tax adjustment		(5,568)		(4,934)
Adjusted EBITDA^1 2		$	20,869	$	21,787
NOI^1 2		$	22,583	$	24,266
General and administrative expenses		(1,714)		(2,479)
Adjusted EBITDA^1 2		$	20,869	$	21,787
Cash interest paid		(8,508)		(8,696)
Interest coverage ratio^1 2		2.45x		2.51x
WA units		43,752		43,145
FFO per WA unit^1 2		$	0.27	$	0.29
FFO payout ratio ^1 2		81.7%		72.8%
AFFO per WA unit^1 2		$	0.22	$	0.25
AFFO payout ratio ^1 2		98.9%		86.8%
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of its equity accounted property investment.