TORONTO--(BUSINESS WIRE)--Slate Office REIT (TSX: SOT.UN) (the "REIT"), an owner and operator of high-quality workplace real estate, today announced its financial results and highlights for the three and twelve months ended December 31, 2022.
“Despite headwinds challenging the broader office market, Slate Office REIT successfully executed a number of high-impact transactions throughout 2022 that have meaningfully enhanced the quality of our real estate and the performance of our portfolio,” said Steve Hodgson, Chief Executive Officer of Slate Office REIT. “We are also pleased to have successfully refinanced a significant volume of debt to further strengthen the REIT’s balance sheet and reduce floating interest rate exposure in a rising rate environment. Looking ahead, we remain focused on uncovering opportunities to maximize value for our unitholders and positioning our portfolio for stability and growth over the long-term.”
For the CEO’s letter to unitholders for the quarter, please follow the link here.
Highlights
-
Completed $378.7 million of strategic transactions to advance the REIT’s repositioning strategy of aligning its portfolio with modern, high-quality, and well-located assets underpinned by strong credit tenants
- Closed the transformative acquisition of Yew Grove REIT plc, an Irish entity that owned a high-quality, fit- for-purpose portfolio of 23 properties anchored by government, technology, and life science tenants
- Strategically disposed of an older, higher risk property at 95-105 Moatfield Drive in Toronto, Ontario at a 12.0% premium to purchase price and a 5.0% premium to the REIT’s June 30, 2022 IFRS value
- Acquired a modern, well-located office property in Chicago, IL anchored by a 10-year lease with Pfizer, Inc. at an attractive 8.4% capitalization rate or $100 per square foot, with significant upside on occupancy
-
Continued strong operational performance further enhanced the resiliency of the REIT’s portfolio
- Completed 563,290 square feet of total leasing in 2022 at a weighted average rental rate spread of 15.1% for the year, up from 6.5% in 2021
- Same property net operating income in the fourth quarter of 2022 increased by $0.5 million or 2.7% over the same period in the prior year
- The average weighted lease term of the REIT’s portfolio is 5.6 years and 66.3% of tenants are government or high-quality credit tenants
-
Refinanced over $600.0 million of senior debt capacity over the year to strengthen the REIT's balance sheet
- Added new financing providers, raising debt capital in CAD, USD, and EUR, demonstrating continued support from institutional lenders of the REIT’s platform and strategy
-
Announced a comprehensive review of strategic alternatives with a focus on maximizing value for unitholders
- Subsequent to the end of the quarter, the REIT appointed George Armoyan and Jean-Charles Angers to its Board of Trustees, adding two experienced individuals that provide further expertise and stability for the REIT
Summary of Q4 2022 Results
Year ended December 31, |
|||||
(thousands of dollars, except per unit amounts) |
2022 |
2021 |
Change % |
||
Rental revenue |
$ |
196,515 |
$ |
172,650 |
13.8% |
Net operating income ("NOI") |
$ |
101,513 |
$ |
87,033 |
16.6% |
Net income (loss) |
$ |
(16,619) |
$ |
46,640 |
(135.6)% |
Weighted average diluted number of trust units (000s) |
|
84,333 |
|
73,257 |
15.1% |
FFO |
$ |
40,060 |
$ |
39,462 |
1.5% |
FFO per unit |
$ |
0.48 |
$ |
0.54 |
(11.1)% |
FFO payout ratio |
|
84.2% |
|
74.0% |
10.2% |
Core-FFO |
$ |
43,423 |
$ |
42,621 |
1.9% |
Core-FFO per unit |
$ |
0.51 |
$ |
0.58 |
(12.1)% |
Core-FFO payout ratio |
|
77.7% |
|
68.5% |
9.2% |
AFFO |
$ |
39,941 |
$ |
38,348 |
4.2% |
AFFO per unit |
$ |
0.47 |
$ |
0.52 |
(9.6)% |
AFFO payout ratio |
|
84.4% |
|
76.1% |
8.3% |
|
December 31, 2022 |
December 31, 2021 |
Change % |
||
Total assets |
$ |
1,869,362 |
$ |
1,808,907 |
3.3% |
Total debt |
$ |
1,153,253 |
$ |
1,045,542 |
10.3% |
Portfolio occupancy |
|
81.1% |
|
83.8% |
(2.7)% |
Loan-to-value ratio |
|
61.9% |
|
59.7% |
2.2% |
Net debt to adjusted EBITDA 1 |
12.1x |
12.6x |
(0.5)x |
||
Interest coverage ratio 1 |
|
2.0x |
2.0x |
—x |
|
1 EBITDA is calculated using trailing twelve month actuals, as calculated below. |
|||||
Conference Call and Presentation Details
Senior management will host a live conference call at 9:00 a.m. ET on Wednesday, February 22, 2023 to discuss the results and ongoing business initiatives of the REIT.
The conference call can be accessed by dialing (416) 764-8658 or 1 (888) 886-7786. Additionally, the conference call will be available via simultaneous audio found at https://viavid.webcasts.com/starthere.jsp?ei=1592828&tp_key=d2858ec0eb. A replay will be accessible until March 8, 2023 via the REIT's website or by dialing (416) 764-8692 or 1 (877) 674-7070 (access code 626689#) approximately two hours after the live event.
About Slate Office REIT (TSX: SOT.UN)
Slate Office REIT is a global owner and operator of high-quality workplace real estate. The REIT owns interests in and operates a portfolio of strategic and well-located real estate assets in North America and Europe. A majority of the REIT’s portfolio is comprised of government and high-quality credit tenants. The REIT acquires quality assets at a discount to replacement cost and creates value for unitholders by applying hands-on asset management strategies to grow rental revenue, extend lease term and increase occupancy. Visit slateofficereit.com to learn more.
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 Office REIT's Supplemental Information online at slateofficereit.com in the Investors section. These materials are also available on SEDAR or upon request at ir@slateam.com or (416) 644-4264.
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. 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
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, Core-FFO, Core-FFO payout ratio, AFFO, AFFO payout ratio, IFRS net asset value, adjusted EBITDA, net debt to 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 property expenses, prior to straight-line rent and other changes. Same-property NOI includes those properties owned by the REIT for each of the current period and the relevant comparative period.
- FFO is defined as net income and comprehensive income adjusted for certain items including leasing costs amortized to revenue, change in fair value of properties, change in fair value of financial instruments, transaction costs, depreciation of hotel asset, change in fair value of Class B LP units, distributions to Class B LP unitholders and subscription receipts equivalent amount.
- Core-FFO is defined as FFO adjusted for the REIT's share of lease payments received for its Data Centre asset, which for IFRS purposes is accounted for as a finance lease and removes the impact of mortgage discharge fees (if any).
- AFFO is defined as FFO adjusted for certain items including guaranteed income supplements, amortization of deferred transaction costs, de-recognition and amortization of mark-to-market adjustments on mortgages refinanced or discharged, adjustments for interest rate subsidies received, recognition of the REIT's share of lease payments received for its Data Centre asset, which for IFRS purposes is accounted for as a finance lease, amortization of straight-line rent and normalized direct leasing and capital costs.
- FFO payout ratio, Core-FFO payout ratio and AFFO payout ratio are defined as distributions declared divided by FFO, Core-FFO and AFFO, respectively.
- FFO per unit, Core-FFO per unit and AFFO per unit are defined as FFO, Core-FFO and AFFO divided by the weighted average diluted number of units outstanding, respectively.
- IFRS net asset value is defined as the aggregate of the carrying value of the REIT’s equity, Class B LP units and deferred units.
- Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, fair value gains (losses) from both financial instruments and investment properties, while also excluding non-recurring items such as transaction costs from dispositions, acquisitions or other events and adjusting income received from the Data Centre to cash received as opposed to finance income recorded for accounting purposes.
- Net debt to adjusted EBITDA is calculated by dividing the aggregate amount of debt outstanding, less cash on hand, by annualized adjusted EBITDA.
- Interest coverage ratio is defined as adjusted EBITDA divided by cash interest paid.
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, which readers should read when evaluating the measures included herein. 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.
SOT-FR
Calculation and Reconciliation of Non-IFRS Measures
The tables below summarize a calculation of non-IFRS measures based on IFRS financial information.
The calculation of NOI is as follows:
Trailing twelve months ended December 31, |
||||
(thousands of dollars, except per unit amounts) |
|
2022 |
|
2021 |
Revenue |
$ |
196,515 |
$ |
172,650 |
Property operating expenses |
|
(104,117) |
|
(94,106) |
Straight-line rents and other changes |
|
9,115 |
|
8,489 |
Net operating income |
$ |
101,513 |
$ |
87,033 |
The reconciliation of net income to FFO, Core-FFO and AFFO is as follows:
Trailing twelve months ended December 31, |
||||
(thousands of dollars, except per unit amounts) |
|
2022 |
|
2021 |
Net income |
$ |
(16,619) |
$ |
46,640 |
Add (deduct): |
|
|
||
Leasing costs amortized to revenue |
|
9,466 |
|
8,541 |
Change in fair value of properties |
|
87,665 |
|
(8,708) |
Change in fair value of financial instruments |
|
(39,144) |
|
(18,824) |
Transaction costs |
|
1,240 |
|
657 |
Depreciation of hotel asset |
|
966 |
|
1,022 |
Deferred income tax expense |
|
(2,405) |
|
2,728 |
Change in fair value of Class B LP units |
|
(3,594) |
|
4,546 |
Distributions to Class B unitholders |
|
2,112 |
|
2,112 |
Subscription receipts equivalent amount |
|
373 |
|
748 |
FFO 1 |
$ |
40,060 |
$ |
39,462 |
Finance income on finance lease receivable |
|
(3,057) |
|
(3,262) |
Finance lease payments received |
|
6,420 |
|
6,421 |
Core-FFO 1 |
$ |
43,423 |
$ |
42,621 |
Amortization of deferred transaction costs |
|
5,068 |
|
3,358 |
Amortization of debt mark-to-market adjustments |
|
1,041 |
|
(155) |
Amortization of straight-line rent |
|
(351) |
|
(52) |
Interest rate subsidy |
|
— |
|
432 |
Normalized direct leasing and capital costs |
|
(9,240) |
|
(7,856) |
AFFO 1 |
$ |
39,941 |
$ |
38,348 |
Weighted average number of diluted units outstanding(000s) |
|
84,333 |
|
73,257 |
FFO per unit 1 |
$ |
0.48 |
$ |
0.54 |
Core-FFO per unit 1 |
$ |
0.51 |
$ |
0.58 |
AFFO per unit 1 |
$ |
0.47 |
$ |
0.52 |
FFO payout ratio 1 |
|
84.2% |
|
74.0% |
Core-FFO payout ratio 1 |
|
77.7% |
|
68.5% |
AFFO payout ratio 1 |
|
84.4% |
|
76.1% |
1 Refer to "Non-IFRS measures" section above. |
||||
The reconciliation of cash flow from operating activities to FFO, Core-FFO and AFFO is as follows:
Trailing twelve months ended December 31, |
||||
(thousands of dollars) |
2022 |
2021 |
||
Cash flow from operating activities |
$ |
49,563 |
$ |
38,232 |
Add (deduct): |
|
|
||
Leasing costs amortized to revenue |
|
9,466 |
|
8,541 |
Transaction costs |
|
1,240 |
|
657 |
Subscription receipts equivalent amount 1 |
|
373 |
|
748 |
Working capital items |
|
(8,218) |
|
1,612 |
Straight-line rent and other changes |
|
(9,115) |
|
(8,489) |
Interest and other finance costs |
|
(52,944) |
|
(44,089) |
Interest paid |
|
47,583 |
|
40,138 |
Distributions paid to Class B unitholders |
|
2,112 |
|
2,112 |
FFO 2 |
$ |
40,060 |
$ |
39,462 |
Finance income on finance lease receivable |
|
(3,057) |
|
(3,262) |
Finance lease payments received |
|
6,420 |
|
6,421 |
Core-FFO 2 |
$ |
43,423 |
$ |
42,621 |
Amortization of deferred transaction costs |
|
5,068 |
|
3,358 |
Amortization of debt mark-to-market adjustments |
|
1,041 |
|
(155) |
Amortization of straight-line rent |
|
(351) |
|
(52) |
Interest rate subsidy |
|
— |
|
432 |
Normalized direct leasing and capital costs |
|
(9,240) |
|
(7,856) |
AFFO 2 |
$ |
39,941 |
$ |
38,348 |
1 On February 7, 2022 each subscription receipt issued by the REIT on November 19, 2021 was exchanged for one unit and a cash distribution equivalent payment of $0.0666 (being equal to the aggregate amount of distributions paid by the REIT per unit for which record dates occurred between December 15, 2021 and January 17, 2022). The cash distribution equivalent payment was $1.1 million. $0.4 million and $0.7 million has been recorded in interest and finance costs for 2022 and 2021, respectively.
|
||||
The calculation of trailing twelve month adjusted EBITDA is as follows:
Trailing twelve months ended December 31, |
||||
(thousands of dollars) |
|
2022 |
|
2021 |
Net income (loss) |
$ |
(16,619) |
$ |
46,640 |
Straight-line rent and other changes |
|
9,115 |
|
8,489 |
Interest income |
|
(485) |
|
(489) |
Interest and finance costs |
|
52,944 |
|
44,089 |
Change in fair value of properties |
|
87,665 |
|
(8,708) |
Change in fair value of financial instruments |
|
(39,144) |
|
(18,824) |
Distributions to Class B shareholders |
|
2,112 |
|
2,112 |
Transaction costs |
|
1,240 |
|
657 |
Depreciation of hotel asset |
|
966 |
|
1,022 |
Change in fair value of Class B LP units |
|
(3,594) |
|
4,546 |
Deferred income tax recovery (expense) |
|
(2,405) |
|
2,728 |
Current income tax expense |
|
1,584 |
|
— |
Adjusted EBITDA 1 |
$ |
93,379 |
$ |
82,262 |
1 Adjusted EBITDA is based on actuals for the twelve months preceding the balance sheet date. |
||||
The calculation of net debt is as follows:
(thousands of dollars) |
December 31, 2022 |
December 31, 2021 |
||
Debt, non-current |
$ |
779,226 |
$ |
883,333 |
Debt, current |
|
374,027 |
|
162,209 |
Debt |
$ |
1,153,253 |
$ |
1,045,542 |
Less: cash on hand |
|
19,905 |
|
9,909 |
Net debt |
$ |
1,133,348 |
$ |
1,035,633 |
The calculation of net debt to adjusted EBITDA is as follows:
Trailing twelve months ended December 31, |
||||
(thousands of dollars) |
|
2022 |
|
2021 |
Debt |
$ |
1,153,253 |
$ |
1,045,542 |
Less: cash on hand |
|
19,905 |
|
9,909 |
Net debt |
$ |
1,133,348 |
$ |
1,035,633 |
Adjusted EBITDA 1 2 |
|
93,379 |
|
82,262 |
Net debt to adjusted EBITDA 2 |
12.1x |
12.6x |
||
1 Adjusted EBITDA is based on actuals for the twelve months preceding the balance sheet date.
|
||||
The interest coverage ratio is calculated as follows:
Trailing twelve months ended December 31, |
||||
(thousands of dollars) |
|
2022 |
|
2021 |
Adjusted EBITDA 1 2 |
$ |
93,379 |
$ |
82,262 |
Interest expense |
|
46,462 |
|
40,138 |
Interest coverage ratio 2 |
2.0x |
2.0x |
||
1 Adjusted EBITDA is based on actuals for the twelve months preceding the balance sheet date.
|
||||
The following is the calculation of IFRS net asset value on a total and per unit basis at December 31, 2022 and December 31, 2021:
(thousands of dollars, except per unit amounts) |
December 31, 2022 |
December 31, 2021 |
||
Equity |
$ |
644,366 |
$ |
621,967 |
Class B LP units |
|
22,832 |
|
26,426 |
Deferred unit liability |
|
1,182 |
|
815 |
Deferred tax liability |
|
454 |
|
2,750 |
IFRS net asset value |
$ |
668,834 |
$ |
651,958 |
Diluted number of units outstanding (000s) 1 |
|
85,582 |
|
73,214 |
IFRS net asset value per unit |
$ |
7.82 |
$ |
8.90 |
1 Represents the fully diluted number of units outstanding and includes outstanding REIT units, DUP units and Class B LP units. |
||||
