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 year ended December 31, 2020.
“Slate Office REIT’s performance in 2020 demonstrated the durability of both our portfolio and asset values,” said Steve Hodgson, Chief Executive Officer of Slate Office REIT. “Our cash rent collections have remained strong throughout the pandemic with our assets operating at higher utilization rates relative to assets in more densely populated areas. A sustained economic recovery supported by further progress on vaccine distribution will have a directly positive impact on office space demand in 2021.”
For the CEO’s letter to unitholders for the quarter, please follow the link here.
Highlights
- Leasing activity: The REIT completed a total of 688,326 square feet of leasing in the year ended December 31, 2020, comprised of 463,259 square feet of renewals and 225,067 square feet of new lease deals. In what has been a challenging environment, this performance compares favourably to 2019 total leasing volumes of 719,226 square feet and Management expects further positive momentum as markets gradually reopen.
- Positive leasing spreads: Leasing spreads were 15.2% above expiring or in-place building rents for the year ended December 31, 2020. Lease renewals were 15.2% above expiring rents and new deals were 15.1% above in-place building rents.
- Durable income: From the onset of the COVID-19 pandemic through to December 2020, the REIT collected a market leading 96% to 98% of rent in cash each month. These strong cash rent collections are a function of the portfolio’s resilient tenancies, comprised of 60% government or credit rated tenants.
- Validation of net asset value: The REIT’s net asset value is supported by recent comparable private market transactions. In addition, 74% of the portfolio has been externally appraised since March 31, 2020. Despite this data, the REIT is trading at an approximately 50% discount to net asset value.
- Refinancing activity: Completed $485.3 million and US$161.1 million of debt refinancing in 2020, which enhanced the REIT's liquidity and addressed all 2020 debt maturities and the majority of 2021 debt maturities.
- Office utilization rates: We were encouraged by the number of employees that utilized office space across our portfolio in 2020 as compared to our peers that primarily have assets in high density urban markets. We expect further increases in utilization rates across our portfolio as government authorities gradually reverse restrictions in our markets.
- Core FFO and Core-FFO payout ratio: Core funds from operations (“FFO”) was $49.7 million or $0.68 per unit for the year ended December 31, 2020. The core FFO payout ratio was 58.8% for the full year 2020.
- AFFO and AFFO payout ratio: Adjusted funds from operations (“AFFO”) was $43.2 million or $0.59 per unit for the year ended December 31, 2020. The AFFO payout ratio was 67.6% for the full year 2020.
Summary of Q4 2020 Results
|
Year ended December 31, |
|||||||||
(thousands of dollars, except per unit amounts) |
2020 |
|
2019 |
|
Change % |
|||||
Rental revenue |
$ |
183,586 |
$ |
215,520 |
(14.8)% |
|||||
Net operating income |
$ |
91,564 |
$ |
103,036 |
(11.1)% |
|||||
Net income |
$ |
13,648 |
$ |
62,441 |
(78.1)% |
|||||
Weighted average diluted number of trust units (000s) |
73,239 |
73,963 |
(1.0)% |
|||||||
Funds from operations |
$ |
46,834 |
$ |
53,526 |
(12.5)% |
|||||
FFO per unit |
$ |
0.64 |
$ |
0.72 |
(11.1)% |
|||||
FFO payout ratio |
62.3% |
63.3% |
(1.0)% |
|||||||
Core FFO |
$ |
49,664 |
$ |
56,011 |
(11.3)% |
|||||
Core FFO per unit |
$ |
0.68 |
$ |
0.76 |
(10.5)% |
|||||
Core FFO payout ratio |
58.8% |
60.5% |
(1.7)% |
|||||||
AFFO |
$ |
43,192 |
$ |
47,877 |
(9.8)% |
|||||
AFFO per unit |
$ |
0.59 |
$ |
0.65 |
(9.2)% |
|||||
AFFO payout ratio |
67.6% |
70.7% |
(3.1)% |
|||||||
|
|
|
|
|||||||
|
December 31, 2020 |
|
December 31, 2019 |
|
Change % |
|||||
Total assets |
$ |
1,679,207 |
$ |
1,709,964 |
(1.8)% |
|||||
Total debt |
$ |
972,604 |
$ |
1,001,947 |
(2.9)% |
|||||
Portfolio occupancy |
84.2% |
87.1% |
(2.9)% |
|||||||
Loan to value ratio |
58.0% |
58.7% |
(0.7)% |
|||||||
Net debt to adjusted EBITDA 1 |
11.1x |
10.1x |
1.0x |
|||||||
Interest coverage ratio 1 |
2.2x |
2.2x |
— |
|||||||
1 |
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, February 25, 2021 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/2021/0225. A replay will be accessible until March 11, 2021 via the REIT's website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 3728917) approximately two hours after the live event.
About Slate Office REIT (TSX: SOT.UN)
Slate Office REIT is an owner and operator of North American office real estate. The REIT owns interests in and operates a portfolio of 34 strategic and well-located real estate assets across Canada's major population centres and includes two assets in downtown Chicago, Illinois. 60% of the REIT’s portfolio is comprised of government or credit rated 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 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: |
||||||
|
Trailing twelve months ended December 31, |
|||||
|
2020 |
|
2019 |
|||
Revenue |
$ |
183,586 |
$ |
215,520 |
||
Property operating expenses |
(97,646) |
(114,823) |
||||
Straight-line rents and other changes |
5,624 |
2,339 |
||||
Net operating income |
$ |
91,564 |
$ |
103,036 |
||
|
|
|
||||
The reconciliation of net income to FFO, Core-FFO and AFFO is as follows: |
||||||
|
|
|
||||
|
Trailing twelve months ended December 31, |
|||||
(thousands of dollars, except per unit amounts) |
2020 |
|
2019 |
|||
Net income |
$ |
13,648 |
$ |
62,441 |
||
Add (deduct): |
|
|
||||
Leasing costs amortized to revenue |
7,254 |
5,354 |
||||
Change in fair value of properties |
114 |
(32,738) |
||||
Change in fair value of financial instruments |
29,803 |
2,710 |
||||
Transaction costs |
1,979 |
12,142 |
||||
Depreciation of hotel asset |
1,058 |
1,000 |
||||
Deferred income tax (recovery) expense |
(96) |
830 |
||||
Change in fair value of Class B LP units |
(9,038) |
(634) |
||||
Distributions to Class B unitholders |
2,112 |
2,421 |
||||
FFO 1 |
$ |
46,834 |
$ |
53,526 |
||
Finance income on finance lease receivable |
(3,452) |
(3,615) |
||||
Finance lease payments received |
6,282 |
6,100 |
||||
Core-FFO 1 |
$ |
49,664 |
$ |
56,011 |
||
Amortization of deferred transaction costs |
3,395 |
3,854 |
||||
Amortization of debt mark-to-market adjustments |
(371) |
(266) |
||||
Amortization of straight-line rent |
(1,630) |
(3,015) |
||||
Interest rate subsidy |
432 |
432 |
||||
Guaranteed income supplements |
296 |
1,152 |
||||
Normalized direct leasing and capital costs |
(8,594) |
(10,291) |
||||
AFFO 1 |
$ |
43,192 |
$ |
47,877 |
||
|
|
|
||||
Weighted average number of diluted units outstanding (000s) |
73,239 |
73,963 |
||||
FFO per unit 1 |
$ |
0.64 |
$ |
0.72 |
||
Core-FFO per unit 1 |
0.68 |
0.76 |
||||
AFFO per unit 1 |
0.59 |
0.65 |
||||
FFO payout ratio 1 |
62.3% |
63.3% |
||||
Core-FFO payout ratio 1 |
58.8% |
60.5% |
||||
AFFO payout ratio 1 |
67.6% |
70.7% |
||||
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: |
||||||
|
Trailing twelve months ended December 31, |
|||||
|
2020 |
2019 |
||||
Cash flow from operating activities |
$ |
46,450 |
$ |
49,296 |
||
Add (deduct): |
|
|
||||
Leasing costs amortized to revenue |
7,254 |
5,354 |
||||
Transaction costs |
1,979 |
12,142 |
||||
Working capital items |
(2,313) |
(9,914) |
||||
Straight-line rent and other changes |
(5,624) |
(2,339) |
||||
Interest and other finance costs |
(42,497) |
(48,988) |
||||
Interest paid |
39,473 |
45,400 |
||||
Distributions paid to Class B unitholders |
2,112 |
2,575 |
||||
FFO 1 |
$ |
46,834 |
$ |
53,526 |
||
Finance income on finance lease receivable |
(3,452) |
(3,615) |
||||
Finance lease payments received |
6,282 |
6,100 |
||||
Core-FFO 1 |
$ |
49,664 |
$ |
56,011 |
||
Amortization of deferred transaction costs |
3,395 |
3,854 |
||||
Amortization of debt mark-to-market adjustments |
(371) |
(266) |
||||
Amortization of straight-line rent |
(1,630) |
(3,015) |
||||
Interest rate subsidy |
432 |
432 |
||||
Guaranteed income supplements |
296 |
1,152 |
||||
Normalized direct leasing and capital costs |
(8,594) |
(10,291) |
||||
AFFO 1 |
$ |
43,192 |
$ |
47,877 |
||
1 |
Refer to "Non-IFRS measures" section above. |
The calculation of trailing twelve month adjusted EBITDA is as follows: |
||||||
|
Trailing twelve months ended December 31, |
|||||
|
2020 |
2019 |
||||
Net income |
$ |
13,648 |
$ |
62,441 |
||
Straight-line rent and other changes |
5,624 |
2,339 |
||||
Interest income |
(555) |
(556) |
||||
Interest and finance costs |
42,497 |
48,988 |
||||
Change in fair value of properties |
114 |
(32,738) |
||||
Change in fair value of financial instruments |
29,803 |
2,710 |
||||
Distributions to Class B shareholders |
2,112 |
2,421 |
||||
Transaction costs |
1,979 |
12,142 |
||||
Depreciation of hotel asset |
1,058 |
1,000 |
||||
Change in fair value of Class B LP units |
(9,038) |
(634) |
||||
Deferred income tax recovery (expense) |
(96) |
830 |
||||
Adjusted EBITDA 1 |
$ |
87,146 |
$ |
98,943 |
||
1 |
Adjusted EBITDA is based on actuals for the twelve months preceding the balance sheet date. |
The calculation of net debt is as follows: |
||||||
|
December 31, 2020 |
|
December 31, 2019 |
|||
Debt, non-current |
$ |
803,449 |
$ |
818,621 |
||
Debt, current |
169,155 |
183,326 |
||||
Debt |
$ |
972,604 |
$ |
1,001,947 |
||
Less: cash on hand |
8,520 |
6,117 |
||||
Net debt |
$ |
964,084 |
$ |
995,830 |
||
The calculation of net debt to adjusted EBITDA is as follows: |
||||||
|
Trailing twelve months ended December 31, |
|||||
|
2020 |
2019 |
||||
Debt |
$ |
972,604 |
$ |
1,001,947 |
||
Less: cash on hand |
8,520 |
6,117 |
||||
Net debt |
$ |
964,084 |
$ |
995,830 |
||
Adjusted EBITDA 1, 2 |
87,146 |
98,943 |
||||
Net debt to adjusted EBITDA 2 |
11.1x |
10.1x |
||||
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: |
|||||
|
Trailing twelve months ended December 31, |
||||
|
2020 |
2019 |
|||
Adjusted EBITDA 1 |
$ |
87,146 |
$ |
98,943 |
|
Interest expense |
39,473 |
45,400 |
|||
Interest coverage ratio 1 |
2.2x |
2.2x |
|||
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 December 31, 2020 and December 31, 2019: |
|
|||||
|
December 31, 2020 |
|
December 31, 2019 |
||
Equity |
$ |
604,743 |
$ |
627,305 |
|
Class B LP units |
21,880 |
30,918 |
|||
Deferred unit liability |
881 |
742 |
|||
Deferred tax liability |
— |
92 |
|||
IFRS net asset value |
$ |
627,504 |
$ |
659,057 |
|
|
|
|
|||
Diluted number of units outstanding 1 |
73,263 |
73,291 |
|||
IFRS net asset value per unit |
$ |
8.57 |
$ |
8.99 |
|
1 |
Represents the fully diluted number of units outstanding and includes outstanding REIT units, DUP units and Class B LP units. |
