Slate Grocery REIT Reports Third Quarter 2021 Results

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 nine months ended September 30, 2021.

"Slate Grocery REIT just concluded one of its best, most consequential quarters to date," said David Dunn, Chief Executive Officer of Slate Grocery REIT. "We achieved transformational growth, increasing the value of our portfolio by more than $414 million, and our team’s continued exceptional operating performance drove record new leasing volumes at high spreads. These results confirm the resilient and essential nature of grocery-anchored real estate, and we are well positioned to continue growing our portfolio to create additional value for our unitholders.”

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

Highlights

• Exceptional operational performance further enhanced the portfolio's durability
  • The REIT's new leasing volumes of 229,290 square feet represent a quarterly record by 18.0%. These new deals were completed at a rental spread of 20.5%.
  • The REIT achieved its fifth consecutive quarter of occupancy growth, finishing the quarter at 93.5%, an increase of 0.3% relative to the last quarter. Excluding assets acquired during the third quarter, portfolio occupancy was 94.4%, an increase of 1.2% from the second quarter 2021.
  • Anchor occupancy increased to 100.0% during the third quarter.
  • Same-property net operating income ("NOI") for the third quarter increased by $0.4 million or 2.1% over the comparative period. Including the impact of completed redevelopments, same-property NOI for the three month period ended September 30, 2021 increased by $0.8 million or 3.7%.
  • Adjusted funds from operations ("AFFO") per unit for the third quarter was $0.23, an increase of $0.02 relative to last quarter.
• Achieved significant growth through record quarterly acquisition activity
  • Acquisitions in the third quarter totaled $414.3 million, which increases the portfolio's scale to $1.9 billion of critical real estate across 13.2 million square feet.
  • Third quarter acquisitions significantly increased the REIT's portfolio presence in the top 50 major metro markets across the United States to 65%, at an attractive cost basis of $127 per square foot.
• Well-positioned for growth and acquisition activity
  • In addition to contractual base rent commitments not yet online, which total more than $2.5 million over the next three quarters, the REIT has a deep new leasing pipeline of over 150,000 square feet.
  • The investment market for grocery-anchored real estate remains liquid and strong. The REIT continues to actively underwrite compelling new opportunities that would further enhance the quality and scale of the portfolio while creating additional value for unitholders.

Summary of Q3 2021 Results

	Three months ended September 30,
(thousands of U.S. dollars, except per unit amounts)	2021			2020			Change %
Rental revenue		$	34,079		$	31,961		6.6%
NOI^1		$	25,647		$	23,098		11.0%
Net income ^2		$	9,603		$	7,630		25.9%
New leasing (square feet) ^2		229,290			196,438			16.7%
New leasing spread ^2		20.5%			4.5%			16.0%
Total leasing (square feet) ^2		425,821			431,778			(1.4)%
Total leasing spread ^2		10.2%			13.1%			(2.9)%
Leasing – anchor / junior anchor ^2		307,885			280,175			9.9%
Weighted average number of units outstanding ("WA units")		49,742			42,222			17.8%
FFO^1 2		$	13,686		$	11,487		19.1%
FFO per WA units^1 2		$	0.28		$	0.27		3.7%
FFO payout ratio^1 2 4		82.4%			79.1%			3.3%
AFFO ^1 2		$	11,478		$	8,954		28.2%
AFFO per WA units^1 2		$	0.23		$	0.21		9.5%
AFFO payout ratio^1 2 4		98.3%			101.5%			(3.2)%
(thousands of U.S. dollars)	2021			2020			Change %
Same-property NOI (3 month period, 67 properties)		$	21,100		$	20,669		2.1%
Same-property NOI (12 month period, 59 properties)		$	73,889		$	73,940		(0.1)%
	As at September 30,
(thousands of U.S. dollars, except per unit amounts)	2021			2020			Change %
Total assets, IFRS		$	1,715,471		$	1,302,849		31.7%
Total assets, proportionate interest		$	1,881,842		$	1,314,465		43.2%
Debt, IFRS		$	928,122		$	777,526		19.4%
Debt, proportionate interest		$	1,140,774		$	784,472		45.4%
Net asset value per unit		$	11.95		$	10.65		12.2%
Number of properties ^2		107			76			40.8%
Portfolio occupancy^2		93.5%			92.5%			1.0%
Debt / GBV ratio ^3		54.1%			59.7%			(5.6)%
Interest coverage ratio^1		2.73x			2.48x			10.1%

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

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

^(3) Excludes subscription receipt funds in escrow for first and second quarter of 2021. The REIT's leverage ratio including subscription receipt funds in escrow for the first and second quarter of 2021 would be 49.8% and 49.4%, respectively.

^(4) Adjusting to exclude the impact of the September distributions in relation to the subscription receipt offering completed on September 22, 2021 for the acquisition of the 25 grocery anchored portfolio (the "Acquisition"), FFO payout ratio and AFFO payout ratio would be 76.5% and 91.2%, respectively.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 am ET on Wednesday, November 3, 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 https://snwebcastcenter.com/webcast/slate/2021/1103. A replay will be accessible until November 17, 2021 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 3665096) 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. $1.9 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.
• Proportionate interest represents financial information adjusted to reflect the REIT's equity accounted joint ventures and financial real estate assets and its share of net income (losses) from equity accounted joint ventures and financial real estate assets on a proportionately consolidated basis at the REIT's ownership percentage of the related investment.

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 September 30,
(in thousands of U.S. dollars, except per unit amounts)		2021			2020
Rental revenue		$	34,079		$	31,961
Straight-line rent revenue		(8		)	(530		)
Property operating expenses		(4,809		)	(4,649		)
IFRIC 21 property tax adjustment		(4,227		)	(4,115		)
Contribution from joint venture investments		612			431
NOI^1 2		$	25,647		$	23,098
Cash flow from operations		$	8,034		$	10,657
Changes in non-cash working capital items		793			(466		)
Transaction costs		—			16
Subscription receipts equivalent amount		4,933			—
Finance charge and mark-to-market adjustments		(465		)	(395		)
Interest, net and TIF note adjustments		31			34
Adjustments for joint venture investments		303			364
Non-controlling interest		57			—
Taxes on dispositions		1			747
Capital		(1,653		)	(852		)
Leasing costs		(492		)	(412		)
Tenant improvements		(64		)	(739		)
AFFO^1 2		$	11,478		$	8,954
Net income^1 2		$	9,603		$	7,630
Change in fair value of financial instruments		(2,102		)	—
Transaction costs		—			16
Change in fair value of properties		(6		)	2,829
Deferred income tax expense		1,782			2,077
Subscription receipts		4,933			—
Adjustments for joint venture investments		3,621			1,088
Unit expense		33			1,215
Non-controlling interest		48			—
Taxes on dispositions		1			747
IFRIC 21 property tax adjustment		(4,227		)	(4,115		)
FFO^1 2		$	13,686		$	11,487
Straight-line rental revenue		(8		)	(530		)
Capital expenditures		(1,653		)	(852		)
Leasing costs		(492		)	(412		)
Tenant improvements		(64		)	(739		)
Non-controlling interest		9			—
AFFO^1 2		$	11,478		$	8,954
	Three months ended September 30,
(in thousands of U.S. dollars, except per unit amounts)		2021			2020
NOI^1 2		$	25,647		$	23,098
General and administrative expenses		(2,549		)	(3,293		)
Cash interest, net		(8,444		)	(7,954		)
Finance charge and mark-to-market adjustments		(465		)	(395		)
Adjustments for joint venture investments		(309		)	(67		)
Current income tax expense		(250		)	(432		)
Non-controlling interest		57			—
Capital expenditures		(1,653		)	(852		)
Leasing costs		(492		)	(412		)
Tenant improvements		(64		)	(739		)
AFFO^1 2		$	11,478		$	8,954

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

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

	Three months ended September 30,
(in thousands of U.S. dollars, except per unit amounts)		2021			2020
Net income ^1		$	9,603		$	7,630
Interest and financing costs			13,842			8,349
Change in fair value of financial instruments			(2,102	)		—
Transaction costs			—			16
Change in fair value of properties			(6	)		2,829
Deferred income tax expense			1,782			2,077
Current income tax expense			251			1,179
Unit expense			33			1,215
Adjustments for equity investment			3,930			1,155
Straight-line rent revenue			(8	)		(530	)
IFRIC 21 property tax adjustment			(4,227	)		(4,115	)
Adjusted EBITDA^1 2		$	23,098		$	19,805
NOI^1 2		$	25,647		$	23,098
General and administrative expenses			(2,549	)		(3,293	)
Adjusted EBITDA^1 2		$	23,098		$	19,805
Cash interest paid			(8,475	)		(7,988	)
Interest coverage ratio^1 2		2.73x			2.48x
WA units			49,742			42,222
FFO per WA unit^1 2		$	0.28		$	0.27
FFO payout ratio ^1 2 3			82.4	%		79.1	%
AFFO per WA unit^1 2		$	0.23		$	0.21
AFFO payout ratio ^1 2 3			98.3	%		101.5	%

^(1) Includes the REIT's share of joint venture investments.

^(2) Refer to “Non-IFRS Measures” section above.

^(3) Adjusting to exclude the impact of the September distributions in relation to the subscription receipt offering completed on September 22, 2021 for the Acquisition, FFO payout ratio would be 76.5% and 91.2%, respectively.