Slate Grocery REIT Reports Third 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 nine months ended September 30, 2022.

“The last three months have further strengthened our conviction in the REIT's grocery-anchored real estate,” said Blair Welch, Chief Executive Officer of Slate Grocery REIT. “Our growth strategy has always rested on buying high-quality real estate at attractive pricing with below market rents. In today’s rising rate and inflationary environment, we are confident that our ability to unlock the embedded rental rate growth in our portfolio and significantly increase our revenues will offset any negative impacts on value and continue to drive our performance.”

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

Highlights

• Maintained leasing momentum, occupancy, and cash flow growth despite macroeconomic pressures
  • Completed 523,251 square feet of leasing in the quarter; new deals were completed at 9.5% above in-place rent and renewals at 4.1% above expiring rent. On a year-to-date basis, the REIT's new leasing spread is 26.6% and total leasing spread is 9.6%. Occupancy remains healthy at 93.1%.
  • Adjusting for completed redevelopments, same-property Net Operating Income ("NOI") increased by $0.7 million or 3.0% year-over-year.
  • Adjusted funds from operations ("AFFO") per unit for the third quarter of 2022 was $0.24, which represents a $0.01 increase from the comparative period in the prior year.
• Established a strategic partnership with the North American Essential Real Estate Income Fund L.P. (the "NA Essential Fund") and upsized the REIT's credit facility at an attractive cost to enhance financial flexibility
  • The REIT’s partnership with the NA Essential Fund provides institutional validation and a consistent source of private capital with which the REIT can pursue compelling investment opportunities.
  • 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.
  • As at quarter end, 89.7% of the REIT's debt is subject to fixed interest rates.
• In a fragmented grocery real estate market, the REIT is well positioned for organic growth and acquisition activity
  • The REIT's average in-place rent is $12.17 which is well below market and provides meaningful embedded growth potential.
  • After quarter end, the REIT completed two strategic dispositions for $19.0 million at a weighted average capitalization rate of 6.6% on forward twelve-month NOI. The REIT expects to recycle the proceeds into accretive new investment opportunities.

Summary of Q3 2022 Results

	Three months ended September 30,
(thousands of U.S. dollars, except per unit amounts)			2022			2021	Change %
Rental revenue		$	48,404		$	34,079		42.0%
NOI^1 2		$	39,455		$	25,647		53.8%
Net income ^2		$	33,553		$	9,603		249.4%
Same-property NOI (3 month period, 71 properties)		$	21,681		$	21,551		0.6%
Same-property NOI (12 month period, 62 properties)		$	77,408		$	76,369		1.4%
New leasing (square feet) ^2			63,068			229,290		(72.5)%
New leasing spread ^2			9.5%			20.5%		(11.0)%
Total leasing (square feet) ^2			523,251			425,821		22.9%
Total leasing spread ^2			5.2%			10.2%		(5.0)%
New leasing – anchor / junior anchor ^2			—			307,885		(100.0)%
Weighted average number of units outstanding ("WA units")			61,460			49,742		23.6%
FFO^1 2		$	17,696		$	13,686		29.3%
FFO per WA units^1 2		$	0.29		$	0.28		3.6%
FFO payout ratio^1 2 3			74.8%			82.4%		(7.6)%
AFFO ^1 2		$	14,596		$	11,478		27.2%
AFFO per WA units^1 2		$	0.24		$	0.23		4.4%
AFFO payout ratio^1 2 3			90.7%			98.3%		(7.7)%
(thousands of U.S. dollars, except per unit amounts)	September 30, 2022			December 31, 2021			Change %
Total assets, IFRS		$	2,321,246		$	1,737,162		33.6%
Total assets, proportionate interest		$	2,537,778		$	1,955,072		29.8%
Debt, IFRS		$	1,175,041		$	937,744		25.3%
Debt, proportionate interest		$	1,384,846		$	1,149,649		20.5%
Net asset value per unit		$	14.56		$	12.29		18.5%
Number of properties ^2			121			107		13.1%
Portfolio occupancy^2			93.1%			93.6%		(0.5)%
Debt / GBV ratio			50.6%			54.0%		(3.4)%
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 September distributions in relation to the subscription receipt offering completed on September 22, 2021 for the acquisition of the 25 grocery-anchored portfolio, FFO payout ratio and AFFO payout ratio for the third quarter of 2021 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 November 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/kWbPB3gBn21. A replay will be accessible until November 17, 2022 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 156927#) 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 September 30,
(in thousands of U.S. dollars, except per unit amounts)			2022		2021
Rental revenue		$	48,404	$	34,079
Straight-line rent revenue			(254)		(8)
Property operating expenses			(7,675)		(4,809)
IFRIC 21 property tax adjustment			(6,333)		(4,227)
Contribution from joint venture investments			5,313		612
NOI^1 2		$	39,455	$	25,647
Cash flow from operations		$	19,909	$	8,034
Changes in non-cash working capital items			(1,790)		793
Transaction costs			250		—
Subscription receipts equivalent amount			—		4,933
Finance charge and mark-to-market adjustments			(536)		(465)
Interest, net and TIF note adjustments			37		31
Adjustments for joint venture investments			1,929		303
Non-controlling interest			(3,018)		57
Taxes on dispositions			—		1
Capital			(1,473)		(1,653)
Leasing costs			(391)		(492)
Tenant improvements			(321)		(64)
AFFO^1 2		$	14,596	$	11,478
Net income^1 2		$	33,553	$	9,603
Change in fair value of financial instruments			—		(2,102)
Transaction costs			250		—
Change in fair value of properties			(1,442)		(6)
Deferred income tax (recovery) expense			(687)		1,782
Unit (income) expense			(1,858)		33
Adjustments for joint venture investments			(2,177)		3,621
Non-controlling interest			(3,610)		48
Subscription receipts equivalent amount			—		4,933
Taxes on dispositions			—		1
IFRIC 21 property tax adjustment			(6,333)		(4,227)
FFO^1 2		$	17,696	$	13,686
Straight-line rental revenue			(254)		(8)
Capital expenditures			(1,473)		(1,653)
Leasing costs			(391)		(492)
Tenant improvements			(321)		(64)
Adjustments for joint venture investments			(1,253)		—
Non-controlling interest			592		9
AFFO^1 2		$	14,596	$	11,478
^(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)			2022		2021
NOI^1 2		$	39,455	$	25,647
General and administrative expenses			(3,485)		(2,549)
Cash interest, net			(12,214)		(8,444)
Finance charge and mark-to-market adjustments			(536)		(465)
Current income tax expense			(37)		(250)
Adjustments for joint venture investments			(3,384)		(309)
Non-controlling interest			(3,018)		57
Capital expenditures			(1,473)		(1,653)
Leasing costs			(391)		(492)
Tenant improvements			(321)		(64)
AFFO^1 2		$	14,596	$	11,478
^(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)			2022		2021
Net income ^1		$	33,553	$	9,603
Interest and financing costs			12,750		13,842
Change in fair value of financial instruments			—		(2,102)
Transaction costs			250		—
Change in fair value of properties			(1,442)		(6)
Deferred income tax (recovery) expense			(687)		1,782
Current income tax expense			37		251
Unit (income) expense			(1,858)		33
Adjustments for joint venture investments			(46)		3,930
Straight-line rent revenue			(254)		(8)
IFRIC 21 property tax adjustment			(6,333)		(4,227)
Adjusted EBITDA^1 2		$	35,970	$	23,098
NOI^1 2			39,455		25,647
General and administrative expenses			(3,485)		(2,549)
Adjusted EBITDA^1 2		$	35,970	$	23,098
Cash interest paid			(12,251)		(8,475)
Interest coverage ratio^1 2			2.94x		2.73x
WA units			61,460		49,742
FFO per WA unit^1 2		$	0.29	$	0.28
FFO payout ratio ^1 2 3			74.8%		82.4%
AFFO per WA unit^1 2		$	0.24	$	0.23
AFFO payout ratio ^1 2 3			90.7%		98.3%
^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 of the 25 grocery-anchored portfolio, FFO payout ratio and AFFO payout ratio for the third quarter of 2021 would be 76.5% and 91.2%, respectively.