Slate Grocery REIT Reports Second Quarter 2023 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, 2023.

"Slate Grocery REIT’s second quarter results highlight our team’s continued operational excellence and ability to drive consistent organic growth across the REIT’s portfolio,” said Blair Welch, Chief Executive Officer of Slate Grocery REIT. “Strong leasing volumes at attractive spreads have increased overall occupancy and income, further enhancing the stability of the REIT’s portfolio. At the same time, our prudent management of the REIT’s balance sheet has provided ample liquidity and flexibility to act quickly on compelling investment opportunities that will be accretive to unitholders.”

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

Highlights

• Achieved record 1.0 million square feet of total leasing in the quarter at attractive spreads that drove occupancy and revenue growth
  • New deals were completed at 23.7% above comparable average in-place rent and non-option renewals at 10.9% above expiring rents
  • New leasing drove a 70-basis point occupancy gain from the beginning of the year to 93.9% occupancy at the close of the quarter, with no grocery-anchor expiries remaining in the balance of the year
  • Adjusting for completed redevelopments, same-property Net Operating Income ("NOI") continues to trend positively, increasing by 2.7% on a trailing-twelve-month basis
  • Despite a rising interest rate environment, Adjusted Funds from Operations ("AFFO") payout ratio decreased by 1.7% to 96.3%, over the comparative period
• Further strengthened the REIT’s balance sheet to create liquidity and financial flexibility
  • The REIT entered into a $175.0 million pay-fixed receive-float interest rate swap ("Interest Rate Swap") contract effective August 22, 2023 and amended an existing $137.5 million Interest Rate Swap to hedge variable interest rate risk. As at June 30, 2023, 96.6% of the REIT's total debt is fixed
  • Year-to-date, the REIT repurchased 0.9 million class U units at a weighted average price of $9.69 (C$13.09) per unit, representing a significant discount to net asset value and providing the REIT with additional liquidity
  • The REIT has no debt maturities remaining in 2023
• The REIT is well positioned for growth and continues to actively underwrite attractive buying opportunities
  • At $12.29 per square foot, average rent in our portfolio remains well below market, providing significant runway for continued rental growth and value increase
  • The REIT continues to underwrite compelling single asset and portfolio opportunities that will be accretive to unitholders

Summary of Q2 2023 Results

	Three months ended June 30,
(thousands of U.S. dollars, except per unit amounts)		2023		2022	Change %
Rental revenue	$	50,324	$	39,460		27.5%
NOI^1 2	$	40,313	$	32,925		22.4%
Net income ^2	$	18,948	$	59,389		(68.1)%
Same-property NOI (3 month period, 96 properties) ^1 2	$	29,984	$	29,871		0.4%
Same-property NOI (12 month period, 68 properties) ^1	$	82,792	$	82,680		0.1%
New leasing (square feet) ^2		143,462		43,923		226.6%
New leasing spread ^2		23.7%		26.6%		(2.9)%
Total leasing (square feet) ^2		1,002,279		439,569		128.0%
Total leasing spread ^2		7.1%		9.3%		(2.2)%
New leasing – anchor / junior anchor ^2		92,574		—		—%
Weighted average number of units outstanding ("WA units")		60,897		61,389		(0.8)%
FFO^1 2	$	16,513	$	16,121		2.4%
FFO per WA units^1 2	$	0.27	$	0.26		3.9%
FFO payout ratio^1 2		79.3%		82.1%		(2.8)%
AFFO ^1 2	$	13,603	$	13,510		0.7%
AFFO per WA units^1 2	$	0.22	$	0.22		—%
AFFO payout ratio^1 2		96.3%		98.0%		(1.7)%
(thousands of U.S. dollars, except per unit amounts)	June 30, 2023		December 31, 2022		Change %
Total assets, IFRS	$	2,239,128	$	2,270,400		(1.4)%
Total assets, proportionate interest ^2	$	2,453,443	$	2,485,131		(1.3)%
Debt, IFRS	$	1,141,434	$	1,131,487		0.9%
Debt, proportionate interest ^2	$	1,350,243	$	1,341,465		0.7%
Net asset value per unit	$	14.24	$	14.65		(2.8)%
Number of properties ^2		117		117		—%
Portfolio occupancy^2		93.9%		93.2%		0.7%
Debt / GBV ratio		51.0%		49.8%		1.2%
Interest coverage ratio^1	2.93x		2.89x			1.4%
^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, 2023 to discuss the results and ongoing business initiatives of the REIT.

The conference call can be accessed dialing [phone] or 1 [phone]. Additionally, the conference call will be available via simultaneous audio found at https://viavid.webcasts.com/starthere.jsp?ei=1621799&tp_key=1eb4041786. A replay will be accessible until August 17, 2023 via the REIT’s website or by dialing [phone] or [phone] (access code 831208#) 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 for 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. 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-propert 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)		2023		2022
Rental revenue	$	50,324	$	39,460
Straight-line rent revenue		(156)		65
Property operating expenses		(8,835)		(6,454)
IFRIC 21 property tax adjustment		(6,655)		(5,446)
Contribution from joint venture investments		5,635		5,300
NOI^1 2	$	40,313	$	32,925
NOI attributable to same property	$	29,984	$	29,871
NOI attributable to redeveloped properties		2,056		1,610
NOI attributable to other properties		8,273		1,444
NOI ^1 2	$	40,313	$	32,925
Cash flow from operations	$	22,721	$	12,632
Changes in non-cash working capital items		(4,639)		748
Transaction costs		—		4
Finance charge and mark-to-market adjustments		(498)		(431)
Interest, net and TIF note adjustments		29		26
Adjustments for joint venture investments		2,711		3,212
Non-controlling interest		(4,019)		(180)
Capital expenditures		(1,518)		(1,691)
Leasing costs		(688)		(268)
Tenant improvements		(496)		(542)
AFFO^1 2	$	13,603	$	13,510
Net income^2	$	18,948	$	59,389
Change in fair value of financial instruments		(1,512)		—
Transaction costs		—		4
Change in fair value of properties		10,413		(40,707)
Deferred income tax expense		497		16,884
Unit income		(132)		(2,937)
Adjustments for joint venture investments		(357)		(10,878)
Non-controlling interest		(4,689)		(188)
IFRIC 21 property tax adjustment		(6,655)		(5,446)
FFO^1 2	$	16,513	$	16,121
Straight-line rental revenue		(156)		65
Capital expenditures		(1,518)		(1,691)
Leasing costs		(688)		(268)
Tenant improvements		(496)		(542)
Adjustments for joint venture investments		(722)		(183)
Non-controlling interest		670		8
AFFO^1 2	$	13,603	$	13,510
^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)		2023		2022
NOI^1 2	$	40,313	$	32,925
General and administrative expenses		(3,785)		(3,784)
Cash interest, net		(12,045)		(9,929)
Finance charge and mark-to-market adjustments		(498)		(431)
Current income tax expense		(737)		(502)
Adjustments for joint venture investments		(2,924)		(2,088)
Non-controlling interest		(4,019)		(180)
Capital expenditures		(1,518)		(1,691)
Leasing costs		(688)		(268)
Tenant improvements		(496)		(542)
AFFO^1 2	$	13,603	$	13,510
^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)		2023		2022
Net income ^1	$	18,948	$	59,389
Interest and financing costs		12,543		10,360
Change in fair value of financial instruments		(1,512)		—
Transaction costs		—		4
Change in fair value of properties		10,413		(40,707)
Deferred income tax expense		497		16,884
Current income tax expense		737		502
Unit income		(132)		(2,937)
Adjustments for joint venture investments		1,845		(8,973)
Straight-line rent revenue		(156)		65
IFRIC 21 property tax adjustment		(6,655)		(5,446)
Adjusted EBITDA^1 2	$	36,528	$	29,141
NOI^1 2		40,313		32,925
General and administrative expenses		(3,785)		(3,784)
Adjusted EBITDA^1 2	$	36,528	$	29,141
Cash interest paid		(24,712)		(9,955)
Interest coverage ratio^1 2	3.03x		2.93x
WA units		60,897		61,389
FFO per WA unit^1 2	$	0.27	$	0.26
FFO payout ratio ^1 2		79.3%		82.1%
AFFO per WA unit^1 2	$	0.22	$	0.22
AFFO payout ratio ^1 2		96.3%		98.0%
^1 Includes the REIT's share of joint venture investments.
^2 Refer to “Non-IFRS Measures” section above.