Slate Grocery REIT Reports Second Quarter 2021 Results

(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 six months ended June 30, 2021.

"We are pleased to report a strong second quarter that is reflective of the positive market fundamentals for grocery-anchored real estate,” said David Dunn, Chief Executive Officer of Slate Grocery REIT. “Coupling the robust and accelerating US economic recovery with the continued strong performance of America’s largest omnichannel grocers relative to pre-pandemic levels, our business is poised to further advance our key operational and strategic objectives in the latter half of 2021.”

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

Highlights

• Completed 171,458 square feet of leasing during the second quarter, comprised of 122,488 square feet of renewals and 48,970 square feet of new leasing. Leases in the second quarter were completed at a weighted average rental spread of 5.8%, with spreads of 13.9% for new leases and 3.4% for renewals.
• Occupancy increased by 0.1% from the first quarter to 93.2% mainly due to new leasing in the quarter, partially offset by the disposition of an outparcel at an existing property. The weighted average tenant retention rate for the second quarter was 93.6%.
• Subsequent to quarter end, the REIT completed the acquisition of a grocery-anchored property in Indianapolis, Indiana for $8.5 million ($81 per square foot). Concurrent with the acquisition, the REIT secured a new, long-term lease with the property's anchor tenant, Kroger, for 15 years.
• The REIT's previously announced transformational acquisition of 25 properties valued at $390 million remains on track to close in the third quarter of 2021.
• During the six month period ended June 30, 2021, the REIT executed ancillary revenue agreements at various properties within the portfolio that will contribute approximately $0.3 million of net operating income ("NOI") on an annualized basis. The REIT continues to pursue a deep pipeline of additional opportunities.
• Including the impact of completed redevelopments, same-property NOI for the trailing twelve month period ended June 30, 2021 (comprised of 59 properties) increased by 1.4% and same-property NOI for the three month period ended June 30, 2021 (comprised of 59 properties) increased by 1.2%, over the respective comparative periods.
• Rental revenue for the second quarter was $33.4 million.
• Net loss for the second quarter was $3.1 million, which is a $10.0 million decrease from the same quarter of the prior year. The decrease is attributed to the change in fair value of financial instruments and the change in fair value of properties, partially offset by the aforementioned increase in revenue.
• Funds from operations ("FFO") per unit for the second quarter was $0.26, which represented a $0.02 increase from the most recent quarter due to a full quarter of NOI contribution from the portfolio acquisition of five grocery-anchored properties completed in the first quarter and NOI contribution from completed redevelopments.
• Adjusted funds from operations ("AFFO") per unit increased by $0.02 from the most recent quarter to $0.21, primarily driven by the aforementioned NOI growth, and lower leasing and tenant improvement spend.
• The REIT’s COVID-19 deferral payback program totaling $1.2 million has been completed and collected in full.

	Three months ended June 30,
(in thousands of U.S. dollars, except per unit amounts)	2021			2020			Change %
Rental revenue		$	33,377		$	30,255		10.3%
NOI^1		$	24,037		$	22,152		8.5%
Net (loss) income ^2		$	(3,141)		$	6,888		(145.6)%
Leasing – shop space		106,449			38,712			175.0%
Leasing – anchor / junior anchor		65,009			479,979			(86.5)%
Total leasing activity (square feet) ^2		171,458			518,691			(66.9)%
Weighted average number of units outstanding ("WA units")		48,615			42,208			15.2%
FFO^1 2		$	12,545		$	11,115		12.9%
FFO per WA units^1 2		$	0.26		$	0.26		—%
FFO payout ratio^1 2		83.4%			81.8%			1.6%
AFFO ^1 2		$	10,398		$	9,046		14.9%
AFFO per WA units^1 2		$	0.21		$	0.21		—%
AFFO payout ratio^1 2		100.6%			100.5%			0.1%
(in thousands of U.S. dollars)	2021			2020			Change %
Same-property NOI (3 month period, 59 properties)		$	18,424		$	18,783		(1.9)%
Same-property NOI (12 month period, 59 properties)		$	74,621		$	74,442		0.2%
	As at June 30,
(in thousands of U.S. dollars, except per unit amounts)	2021			2020			Change %
Total assets		$	1,552,511		$	1,300,866		19.3%
Total debt		$	766,997		$	781,002		(1.8)%
Net asset value per unit ^3		$	12.55		$	10.55		19.0%
Number of properties ^2		80			77			3.9%
Portfolio occupancy^2		93.2%			92.2%			1.0%
Debt / GBV ratio ^4		53.0%			60.0%			(7.0)%
Interest coverage ratio^1		2.59x			2.52x			2.8%

^(1) Refer to “Non-IFRS Measures” section below.

^(2) Includes the REIT's share of its joint venture investment.

^(3) Excludes the impact of the REIT's bought deal public offering of 11.4 million subscription receipts for gross proceeds of C$133.0 million.

^(4) ^Subscription receipt funds in escrow have been removed from total assets to calculate the leverage ratio for the second quarter of 2021. The REIT's leverage ratio including subscription receipt funds in escrow would be 49.4%.

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 66% of the REIT’s tenant portfolio is comprised of 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.

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.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 am ET on Wednesday, July 28, 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/2021/0728. A replay will be accessible until August 11, 2021 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 2527949) 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. $1.4 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 focused on real estate. We focus on fundamentals with the objective of creating long-term value for our investors and partners. Slate’s platform has a range of investment strategies, including opportunistic, value add, core plus and debt investments. 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.

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 June 30,
(in thousands of U.S. dollars, except per unit amounts)		2021			2020
Rental revenue		$	33,377		$	30,255
Straight-line rent revenue		(276		)	(237		)
Property operating expenses		(4,920		)	(3,972		)
IFRIC 21 property tax adjustment		(4,278		)	(3,994		)
Adjustments for joint venture investment		134			100
NOI^1 2		$	24,037		$	22,152
Cash flow from operations		$	19,886		$	10,942
Changes in non-cash working capital items		(7,961		)	(3,275		)
Transaction costs		176			972
Finance charge and mark-to-market adjustments		(464		)	(386		)
Interest, net and TIF note adjustments		26			38
Adjustments for joint venture investment		84			(116		)
Taxes on dispositions		522			2,703
Capital		(1,009		)	(488		)
Leasing costs		(212		)	(304		)
Tenant improvements		(650		)	(1,040		)
AFFO^1 2		$	10,398		$	9,046
Net (loss) income^1 2		$	(3,141	)	$	6,888
Change in fair value of financial instruments		14,305			—
Transaction costs		176			972
Change in fair value of properties		1,439			809
Deferred income tax expense		1,866			312
Adjustments for joint venture investment		42			438
Unit expense		1,614			2,987
Taxes on dispositions		522			2,703
IFRIC 21 property tax adjustment		(4,278		)	(3,994		)
FFO^1 2		$	12,545		$	11,115
Straight-line rental revenue		(276		)	(237		)
Capital expenditures		(1,009		)	(488		)
Leasing costs		(212		)	(304		)
Tenant improvements		(650		)	(1,040		)
AFFO^1 2		$	10,398		$	9,046
NOI^1 2		$	24,037		$	22,152
General and administrative expenses		(2,607		)	(2,919		)
Cash interest, net		(8,237		)	(7,603		)
Finance charge and mark-to-market adjustments		(464		)	(386		)
Adjustments for joint venture investment		(50		)	(216		)
Current income tax expense		(410		)	(150		)
Capital expenditures		(1,009		)	(488		)
Leasing costs		(212		)	(304		)
Tenant improvements		(650		)	(1,040		)
AFFO^1 2		$	10,398		$	9,046
^(1) Refer to “Non-IFRS Measures” section above. ^(2) Includes the REIT's share of its joint venture investment.

	Three months ended June 30,
(in thousands of U.S. dollars, except per unit amounts)		2021			2020
Net (loss) income ^1		$	(3,141	)	$	6,888
Interest and financing costs		8,701			7,989
Change in fair value of financial instruments		14,305			—
Transaction costs		176			972
Change in fair value of properties		1,439			809
Deferred income tax expense		1,866			312
Current income tax expense		932			2,853
Unit expense		1,614			2,987
Adjustments for equity investment		92			654
Straight-line rent revenue		(276		)	(237		)
IFRIC 21 property tax adjustment		(4,278		)	(3,994		)
Adjusted EBITDA^1 2		$	21,430		$	19,233
NOI^1 2		$	24,037		$	22,152
General and administrative expenses		(2,607		)	(2,919		)
Adjusted EBITDA^1 2		$	21,430		$	19,233
Cash interest paid		(8,263		)	(7,641		)
Interest coverage ratio^1 2		2.59x			2.52x
WA units		48,615			42,208
FFO per WA unit^1 2		$	0.26		$	0.26
FFO payout ratio ^1 2		83.4		%	81.8		%
AFFO per WA unit^1 2		$	0.21		$	0.21
AFFO payout ratio ^1 2		100.6		%	100.5		%
^(1) Includes the REIT's share of its joint venture investment. ^(2) Refer to “Non-IFRS Measures” section above.