Slate Grocery REIT Reports Second 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 and six months ended June 30, 2022.

“The last three months have underscored our team’s unique ability to unlock creative solutions for capital and execute high-quality, accretive deals that create value for our unitholders,” said Blair Welch, Chief Executive Officer of Slate Grocery REIT. “We are very pleased to have completed the largest acquisition in Slate Grocery REIT’s history and established an efficient structure for growth that will enable us to continue scaling our platform, particularly as emerging macroeconomic pressures create attractive new opportunities for well-capitalized buyers.”

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

Highlights

• Achieved significant growth through $425 million grocery-anchored real estate portfolio acquisition at attractive valuation
  • On July 15, 2022, the REIT completed the acquisition of 14 properties (the "Portfolio") for $425 million, which represents a low acquisition basis of $174 per square foot (“PSF”) with below market rents
  • The Portfolio increases the REIT’s exposure to the rapidly growing Sunbelt Region of the U.S. and includes a wide range of high-performing grocers, including Publix, Ahold Delhaize, Albertsons, and Walmart
• Subsequent to period end, the REIT established a strategic joint venture with the North American Essential Real Estate Income Fund L.P. (the "NA Essential Fund") and upsized its credit facility at an attractive cost to ensure financial stability and flexibility
  • The REIT’s partnership with the NA Essential Fund, which includes a leading global sovereign wealth fund, provides institutional validation of the REIT’s strategy, valuation, and management team
  • The NA Essential Fund’s $180 million cash investment into the REIT’s assets was made at a valuation in line with the REIT’s first quarter 2022 IFRS value, further validating the REIT’s real estate value
  • On July 15, 2022, the REIT amended its existing revolving credit facility and term loans to reduce pricing and improve terms, enhancing its liquidity position and mitigating near-term rising interest rate risk
• Maintained leasing momentum, occupancy growth, and financial stability despite macroeconomic pressures
  • Completed 439,569 square feet of leasing in the quarter, including 43,923 square feet of new leasing at a 26.6% rental spread and renewals totaling 395,646 square feet at a 5.9% spread. On a year-to-date basis the REIT's total leasing spread is 12.4%, providing protection in an inflationary environment.
  • Occupancy has increased by 20 basis points since the most recent quarter to 93.4%
  • Adjusting for completed redevelopments, same-property Net Operating Income ("NOI") increased by $0.4 million or 1.5% year-over-year
  • Adjusted funds from operations ("AFFO") per unit for the second quarter of 2022 was $0.22, which represents a $0.01 increase from the comparative period in the prior year

Summary of Q2 2022 Results

	Three months ended June 30,
(thousands of U.S. dollars, except per unit amounts)			2022			2021	Change %
Rental revenue		$	39,460		$	33,377		18.2%
NOI^1 2		$	32,925		$	24,037		37.0%
Net income (loss) ^2		$	59,389		$	(3,141)		(1,990.8)%
Same-property NOI (3 month period, 70 properties)		$	21,687		$	21,393		1.4%
Same-property NOI (12 month period, 63 properties)		$	78,922		$	77,889		1.3%
New leasing (square feet) ^2			43,923			48,970		(10.3)%
New leasing spread ^2			26.6%			13.9%		12.7%
Total leasing (square feet) ^2			439,569			171,458		156.4%
Total leasing spread ^2			9.3%			5.8%		3.5%
New leasing – anchor / junior anchor ^2			—			20,010		(100.0)%
Weighted average number of units outstanding ("WA units")			61,389			48,615		26.3%
FFO^1 2		$	16,121		$	12,545		28.5%
FFO per WA units^1 2		$	0.26		$	0.26		—%
FFO payout ratio^1 2			82.1%			83.4%		(1.6)%
AFFO ^1 2		$	13,510		$	10,398		29.9%
AFFO per WA units^1 2		$	0.22		$	0.21		4.8%
AFFO payout ratio^1 2			98.0%			100.6%		(2.6)%
(thousands of U.S. dollars, except per unit amounts)	June 30, 2022			December 31, 2021			Change %
Total assets, IFRS		$	1,886,288		$	1,737,162		8.6%
Total assets, proportionate interest		$	2,103,939		$	1,955,072		7.6%
Debt, IFRS		$	968,140		$	937,744		3.2%
Debt, proportionate interest		$	1,178,549		$	1,149,649		2.5%
Net asset value per unit		$	14.11		$	12.29		14.8%
Number of properties ^2			108			107		0.9%
Portfolio occupancy^2			93.4%			93.6%		(0.2)%
Debt / GBV ratio			51.3%			54.0%		(2.7)%
Interest coverage ratio^1		2.93x			2.98x			(1.7)%
^(1) Refer to “Non-IFRS Measures” section below.
^(2) Includes the REIT's share of joint venture investments.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 am ET on August 3, 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://app.webinar.net/Ra605X92BEg. A replay will be accessible until August 17, 2022 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 494245#) 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 $2.4 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 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 June 30,
(in thousands of U.S. dollars, except per unit amounts)			2022			2021
Rental revenue		$	39,460		$	33,377
Straight-line rent revenue			65			(276	)
Property operating expenses			(6,454	)		(4,920	)
IFRIC 21 property tax adjustment			(5,446	)		(4,278	)
Contribution from joint venture investments			5,300			134
NOI^1 2		$	32,925		$	24,037
Cash flow from operations		$	12,632		$	19,886
Changes in non-cash working capital items			748			(7,961	)
Transaction costs			4			176
Finance charge and mark-to-market adjustments			(431	)		(464	)
Interest, net and TIF note adjustments			26			26
Adjustments for joint venture investments			3,212			84
Non-controlling interest			(180	)		—
Taxes on dispositions			—			522
Capital			(1,691	)		(1,009	)
Leasing costs			(268	)		(212	)
Tenant improvements			(542	)		(650	)
AFFO^1 2		$	13,510		$	10,398
Net income (loss)^1 2		$	59,389		$	(3,141	)
Change in fair value of financial instruments			—			14,305
Transaction costs			4			176
Change in fair value of properties			(40,707	)		1,439
Deferred income tax expense			16,884			1,866
Unit (income) expense			(2,937	)		1,614
Adjustments for joint venture investments			(10,878	)		42
Non-controlling interest			(188	)		—
Taxes on dispositions			—			522
IFRIC 21 property tax adjustment			(5,446	)		(4,278	)
FFO^1 2		$	16,121		$	12,545
Straight-line rental revenue			65			(276	)
Capital expenditures			(1,691	)		(1,009	)
Leasing costs			(268	)		(212	)
Tenant improvements			(542	)		(650	)
Adjustments for joint venture investments			(183	)		—
Non-controlling interest			8			—
AFFO^1 2		$	13,510		$	10,398
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of joint venture investments.
	Three months ended June 30,
(in thousands of U.S. dollars, except per unit amounts)			2022			2021
NOI^1 2		$	32,925		$	24,037
General and administrative expenses			(3,784	)		(2,607	)
Cash interest, net			(9,929	)		(8,237	)
Finance charge and mark-to-market adjustments			(431	)		(464	)
Current income tax expense			(502	)		(410	)
Adjustments for joint venture investments			(2,088	)		(50	)
Non-controlling interest			(180	)		—
Capital expenditures			(1,691	)		(1,009	)
Leasing costs			(268	)		(212	)
Tenant improvements			(542	)		(650	)
AFFO^1 2		$	13,510		$	10,398
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of joint venture investments.

	Three months ended June 30,
(in thousands of U.S. dollars, except per unit amounts)			2022			2021
Net income (loss) ^1		$	59,389		$	(3,141	)
Interest and financing costs			10,360			8,701
Change in fair value of financial instruments			—			14,305
Transaction costs			4			176
Change in fair value of properties			(40,707	)		1,439
Deferred income tax expense			16,884			1,866
Current income tax expense			502			932
Unit (income) expense			(2,937	)		1,614
Adjustments for joint venture investments			(8,973	)		92
Straight-line rent revenue			65			(276	)
IFRIC 21 property tax adjustment			(5,446	)		(4,278	)
Adjusted EBITDA^1 2		$	29,141		$	21,430
NOI^1 2			32,925			24,037
General and administrative expenses			(3,784	)		(2,607	)
Adjusted EBITDA^1 2		$	29,141		$	21,430
Cash interest paid			(9,955	)		(8,263	)
Interest coverage ratio^1 2		2.93x			2.59x
WA units			61,389			48,615
FFO per WA unit^1 2		$	0.26		$	0.26
FFO payout ratio ^1 2			82.1%			83.4%
AFFO per WA unit^1 2		$	0.22		$	0.21
AFFO payout ratio ^1 2			98.0%			100.6%
^(1) Includes the REIT's share of joint venture investments.
^(2) Refer to “Non-IFRS Measures” section above.