Slate Grocery REIT Reports First Quarter 2022 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 months ended March 31, 2022.

“Our results this quarter again underscore the uniquely defensive nature of grocery real estate in all market conditions,” said Blair Welch, Chief Executive Officer of Slate Grocery REIT. “As the pandemic continues to abate and a new set of macroeconomic pressures emerges, our properties are playing an even more critical role in facilitating the last mile of food logistics in a timely and cost efficient way. Our team’s strong operational performance has ensured that our portfolio is well positioned to continue providing long-term, stable income, and we remain focused on organic growth and accretive investment opportunities to create value for our unitholders.”

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

Highlights

• Continued operational excellence in the first quarter further enhanced the durability of the REIT's portfolio
  • Completed 410,624 square feet of leasing in the quarter, including 91,346 square feet of new leasing at a 38.3% spread and renewals totaling 319,278 square feet at an 8.9% rental spread
  • Adjusting for completed redevelopments, same-property Net Operating Income ("NOI") increased by $0.2 million or 0.8% year-over-year
  • Adjusted funds from operations ("AFFO") per unit for the first quarter was $0.22, which represents a $0.03 increase from the comparative period in the prior year
• As global macroeconomic pressures mount, the REIT’s portfolio is uniquely well positioned to ensure long-term, stable income
  • All anchor spaces remain fully occupied and total occupancy is stable at 93.2%
  • 97% of the REIT's portfolio is secured by net leases, offering protection in an inflationary market
  • The REIT's debt profile mitigates near-term rising interest rate risk as 95% of the REIT's debt is fixed
  • The REIT's basis of $145 per square foot ("PSF") remains highly defensive, providing a 47% discount to the average cost for a new build of $275 PSF and increasing
• The REIT continues to actively underwrite accretive investment opportunities and pursue organic growth
  • On March 30, 2022, the REIT established an at-the-market equity program ("ATM program") to fund ongoing development and acquisition activities and for general working capital purposes
  • Subsequent to the quarter, the REIT issued a total of 1.4 million class U units of the REIT under the ATM program at an average share price of C$16.95 (USD$13.59) for proceeds, net of costs of $18.6 million

Summary of Q1 2022 Results

	Three months ended March 31,
(thousands of U.S. dollars, except per unit amounts)			2022			2021	Change %
Rental revenue		$	38,966		$	32,471		20.0%
NOI^1 2		$	32,179		$	23,285		38.2%
Net income ^2		$	27,425		$	60,775		(54.9) %
Same-property NOI (3 month period, 65 properties)		$	20,062		$	20,043		0.1%
Same-property NOI (12 month period, 56 properties)		$	70,448		$	69,980		0.7%
New leasing (square feet) ^2			91,346			46,774		95.3%
New leasing spread ^2			38.3%			6.6%		31.7%
Total leasing (square feet) ^2			410,624			143,325		186.5%
Total leasing spread ^2			15.8%			2.4%		13.4%
New leasing – anchor / junior anchor ^2			60,273			16,225		271.5%
Weighted average number of units outstanding ("WA units")			60,064			48,597		23.6%
FFO^1 2 3		$	16,209		$	11,529		40.6%
FFO per WA units^1 2 3		$	0.27		$	0.24		12.5%
FFO payout ratio^1 2 3			79.8%			90.7%		(12.0) %
AFFO ^1 2 3		$	13,257		$	9,450		40.3%
AFFO per WA units^1 2 3		$	0.22		$	0.19		15.8%
AFFO payout ratio^1 2 3			97.5%			110.7%		(11.9) %
(thousands of U.S. dollars, except per unit amounts)	March 31, 2022			December 31, 2021			Change %
Total assets, IFRS		$	1,775,504		$	1,737,162		2.2%
Total assets, proportionate interest		$	1,993,004		$	1,955,072		1.9%
Debt, IFRS		$	937,721		$	937,744		—%
Debt, proportionate interest		$	1,148,841		$	1,149,649		(0.1) %
Net asset value per unit		$	13.02		$	12.29		5.9%
Number of properties ^2			107			107		—%
Portfolio occupancy^2			93.2%			93.6%		(0.4) %
Debt / GBV ratio			52.8%			54.0%		(1.2) %
Interest coverage ratio^1		2.94x			2.98x			(1.3) %
^(1) Refer to “Non-IFRS Measures” section below.
^(2) Includes the REIT's share of joint venture investments.
^(3) Adjusting to exclude the impact of the $169.0 million debt refinancing in the first quarter of 2021, FFO, FFO per unit and FFO payout ratio would be $11.5 million, $0.24 and 88.3%, respectively, and AFFO, AFFO per unit and AFFO payout ratio would be $9.8 million, $0.20 and 107.1%, respectively.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 am ET on Tuesday, May 10, 2022 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://www.snwebcastcenter.com/webcast/slate/2022/0510. A replay will be accessible until May 24, 2022 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 8270244) 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 targeting real assets. We focus on fundamentals with the objective of creating long-term value for our investors and partners. Slate’s platform has a range of real estate and infrastructure 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 March 31,
(in thousands of U.S. dollars, except per unit amounts)			2022		2021
Rental revenue		$	38,966	$	32,471
Straight-line rent revenue			126		(165)
Property operating expenses			(28,590)		(21,560)
IFRIC 21 property tax adjustment			16,439		12,397
Contribution from joint venture investments			5,238		142
NOI^1 2		$	32,179	$	23,285
Cash flow from operations		$	20,271	$	15,714
Changes in non-cash working capital items			(6,870)		(3,795)
Finance charge and mark-to-market adjustments			(417)		(576)
Interest, net and TIF note adjustments			27		35
Adjustments for joint venture investments			3,186		77
Non-controlling interest			(192)		—
Change in fair value of subscription receipt funds in escrow			—		(91)
Capital			(1,625)		(788)
Leasing costs			(326)		(365)
Tenant improvements			(797)		(761)
AFFO^1 2 3		$	13,257	$	9,450
Net income^1 2		$	27,425	$	60,775
Change in fair value of financial instruments			—		(3,018)
Change in fair value of properties			(36,356)		(78,749)
Deferred income tax expense			13,768		19,448
Adjustments for joint venture investments			(7,807)		107
Unit expense			2,933		569
Non-controlling interest			(193)		—
IFRIC 21 property tax adjustment			16,439		12,397
FFO^1 2 3		$	16,209	$	11,529
Straight-line rental revenue			126		(165)
Capital expenditures			(1,625)		(788)
Leasing costs			(326)		(365)
Tenant improvements			(797)		(761)
Non-controlling interest			1		—
Adjustments for joint venture investments			(331)		—
AFFO^1 2 3		$	13,257	$	9,450
	Three months ended March 31,
(in thousands of U.S. dollars, except per unit amounts)			2022		2021
NOI^1 2		$	32,179	$	23,285
General and administrative expenses			(3,613)		(2,215)
Cash interest, net			(9,688)		(8,380)
Finance charge and mark-to-market adjustments			(417)		(576)
Current income tax expense			(212)		(685)
Adjustments for joint venture investments			(2,052)		(65)
Non-controlling interest			(192)		—
Capital expenditures			(1,625)		(788)
Leasing costs			(326)		(365)
Tenant improvements			(797)		(761)
AFFO^1 2 3		$	13,257	$	9,450
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of joint venture investments.
^(3) Adjusting to exclude the impact of the $169.0 million debt refinancing in the first quarter of 2021, FFO and AFFO three month period ended March 31, 2021 would be $11.8 million and $9.8 million, respectively.

	Three months ended March 31,
(in thousands of U.S. dollars, except per unit amounts)			2022		2021
Net income ^1		$	27,425	$	60,775
Interest and financing costs			10,160		8,956
Change in fair value of financial instruments			—		(3,018)
Change in fair value of properties			(36,356)		(78,749)
Deferred income tax expense			13,768		19,448
Current income tax expense			212		685
Unit expense			2,933		569
Adjustments for joint venture investments			(6,086)		172
Straight-line rent revenue			126		(165)
IFRIC 21 property tax adjustment			16,439		12,397
Adjusted EBITDA^1 2		$	28,566	$	21,070
NOI^1 2			32,179		23,285
General and administrative expenses			(3,613)		(2,215)
Adjusted EBITDA^1 2		$	28,566	$	21,070
Cash interest paid			(9,715)		(8,415)
Interest coverage ratio^1 2		2.94x		2.50x
WA units			60,064		48,597
FFO per WA unit^1 2 3		$	0.27	$	0.24
FFO payout ratio ^1 2 3			79.8%		90.7%
AFFO per WA unit^1 2 3		$	0.22	$	0.19
AFFO payout ratio ^1 2 3			97.5%		110.7%
^(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 $169.0 million debt refinancing in the first quarter of 2021, FFO per unit and FFO payout ratio would be $0.24 and 88.3%, respectively, and AFFO per unit and AFFO payout ratio would be $0.20 and 107.1%, respectively.