Slate Grocery REIT Reports Third 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 nine months ended September 30, 2023.

"Our team's strong leasing performance at attractive rental spreads continues to drive gains in occupancy and net operating income, keeping the REIT well positioned to provide unitholders with durable cash flow," said Blair Welch, Chief Executive Officer of Slate Grocery REIT. "We believe we have significant growth still embedded in our portfolio, with in-place rents that are well below market. Strong fundamentals in the grocery-anchored sector will provide further tailwinds as we seek to realize this growth and increase the overall value of our business."

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

Highlights

• Strong leasing fundamentals and rental spreads drive occupancy and Net Operating Income ("NOI") growth
  • The REIT completed 691,421 square feet of total leasing in the quarter; new deals were completed at 18.4% above comparable average in-place rent and non-option renewals at 14.8% above expiring rents
  • New leasing drove a 20-basis point occupancy gain from the prior quarter, bringing occupancy to 94.1%
  • Adjusting for completed redevelopments, same-property NOI continues to trend positively, increasing by 2.0% on a trailing 12-month basis
• The REIT remains well-positioned in today's elevated interest rate environment
  • Most of the REIT's total debt is fixed with a weighted average interest rate of 4.2%, and there remains positive leverage between the current cost of financing and the REIT's Q3 2023 IFRS value at a 7.0% capitalization rate
  • At $12.37 per square foot ("PSF"), average rent in the REIT's portfolio remains well below the $22.52¹ PSF market average, providing significant runway for continued NOI growth
• The REIT's units are trading at a discount to Net Asset Value ("NAV"), presenting a compelling investment opportunity for unitholders looking for an attractive total return
  • As at September 30th, 2023, the REIT's unit price indicates an implied cap rate of 8.5% based on trailing 12-month NOI, which represents a 41.1% discount to NAV and a disconnect in valuation based on the REIT's strong fundamentals and operational performance
  • We believe a private fund's $180 million investment into the REIT's assets at NAV in July 2022 further validates the REIT's NAV and underscores the strength, quality, and stability of the REIT's platform
  • The REIT's discounted unit price provides an attractive entry point for investors, with below market in-place rents driving attractive renewal spreads and new leasing supporting strong NOI growth
  • Year-to-date, the REIT has repurchased 1.2 million class U units at a weighted average price of $9.61 (C$13.00) per unit

^1 CBRE Econometrics Average Retail Rents for Neighborhood & Community Centers as at Q2 2023

Summary of Q3 2023 Results

	Three months ended September 30,
(thousands of U.S. dollars, except per unit amounts)	2023		2022		Change %
Rental revenue	$	50,629	$	48,404	4.6%
NOI^1 2	$	40,182	$	39,455	1.8%
Net income ^2	$	12,370	$	33,553	(63.1)%
Same-property NOI (3 month period, 100 properties) ^1 2	$	31,850	$	31,829	0.1%
Same-property NOI (12 month period, 97 properties) ^1	$	118,938	$	118,266	0.6%
New leasing (square feet) ^2		103,142		63,068	63.5%
New leasing spread ^2		18.4%		9.5%	8.9%
Total leasing (square feet) ^2		691,421		523,251	32.1%
Total leasing spread ^2		10.9%		5.2%	5.7%
New leasing – anchor / junior anchor ^2		32,400		—	—%
Weighted average number of units outstanding ("WA units")		60,473		61,460	(1.6)%
FFO^1 2	$	16,329	$	17,696	(7.7)%
FFO per WA units^1 2	$	0.27	$	0.29	(6.9)%
FFO payout ratio^1 2		79.6%		74.8%	4.8%
AFFO ^1 2	$	13,061	$	14,596	(10.5)%
AFFO per WA units^1 2	$	0.22	$	0.24	(8.3)%
AFFO payout ratio^1 2		99.6%		90.7%	9.8%
(thousands of U.S. dollars, except per unit amounts)	September 30, 2023		December 31, 2022		Change %
Total assets, IFRS	$	2,244,401	$	2,270,400	(1.1)%
Total assets, proportionate interest ^2	$	2,459,006	$	2,485,131	(1.1)%
Debt, IFRS	$	1,144,742	$	1,131,487	1.2%
Debt, proportionate interest ^2	$	1,352,854	$	1,341,465	0.8%
Net asset value per unit	$	14.25	$	14.65	(2.7)%
Number of properties ^2		117		117	—%
Portfolio occupancy^2		94.1%		93.2%	0.9%
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 November 7, 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=1636230&tp_key=5b969b171e. A replay will be accessible until November 21, 2023 via the REIT’s website or by dialing [phone] or [phone] (access code 790435#) 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-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)	2023		2022
Rental revenue	$	50,629	$	48,404
Straight-line rent revenue		(391)		(254)
Property operating expenses		(8,830)		(7,675)
IFRIC 21 property tax adjustment		(6,532)		(6,333)
Contribution from joint venture investments		5,306		5,313
NOI^1 2	$	40,182	$	39,455
NOI attributable to same property	$	31,850	$	31,829
NOI attributable to redeveloped properties		1,357		1,337
NOI attributable to other properties		6,975		6,289
NOI ^1 2	$	40,182	$	39,455
Cash flow from operations	$	22,978	$	19,909
Changes in non-cash working capital items		(5,476)		(1,790)
Transaction costs		—		250
Finance charge and mark-to-market adjustments		(435)		(536)
Interest, net and TIF note adjustments		39		37
Adjustments for joint venture investments		2,851		1,929
Non-controlling interest		(3,623)		(3,018)
Capital expenditures		(1,516)		(1,473)
Leasing costs		(759)		(391)
Tenant improvements		(998)		(321)
AFFO^1 2	$	13,061	$	14,596
Net income^2	$	12,370	$	33,553
Change in fair value of financial instruments		782		—
Transaction costs		—		250
Change in fair value of properties		9,621		(1,442)
Deferred income tax expense (recovery)		1,583		(687)
Unit income		(1,685)		(1,858)
Adjustments for joint venture investments		4,584		(2,177)
Non-controlling interest		(4,394)		(3,610)
IFRIC 21 property tax adjustment		(6,532)		(6,333)
FFO^1 2	$	16,329	$	17,696
Straight-line rental revenue		(391)		(254)
Capital expenditures		(1,516)		(1,473)
Leasing costs		(759)		(391)
Tenant improvements		(998)		(321)
Adjustments for joint venture investments		(375)		(1,253)
Non-controlling interest		771		592
AFFO^1 2	$	13,061	$	14,596
^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)		2023		2022
NOI^1 2	$	40,182	$	39,455
General and administrative expenses		(3,935)		(3,485)
Cash interest, net		(12,419)		(12,214)
Finance charge and mark-to-market adjustments		(435)		(536)
Current income tax expense		(981)		(37)
Adjustments for joint venture investments		(2,455)		(3,384)
Non-controlling interest		(3,623)		(3,018)
Capital expenditures		(1,516)		(1,473)
Leasing costs		(759)		(391)
Tenant improvements		(998)		(321)
AFFO^1 2	$	13,061	$	14,596
^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)	2023		2022
Net income ^1	$	12,370	$	33,553
Interest and financing costs		12,854		12,750
Change in fair value of financial instruments		782		—
Transaction costs		—		250
Change in fair value of properties		9,621		(1,442)
Deferred income tax expense (recovery)		1,583		(687)
Current income tax expense		981		37
Unit income		(1,685)		(1,858)
Adjustments for joint venture investments		6,664		(46)
Straight-line rent revenue		(391)		(254)
IFRIC 21 property tax adjustment		(6,532)		(6,333)
Adjusted EBITDA^1 2	$	36,247	$	35,970
NOI^1 2		40,182		39,455
General and administrative expenses		(3,935)		(3,485)
Adjusted EBITDA^1 2	$	36,247	$	35,970
Cash interest paid		(12,458)		(12,251)
Interest coverage ratio^1 2	2.91x		2.94x
WA units		60,473		61,460
FFO per WA unit^1 2	$	0.27	$	0.29
FFO payout ratio ^1 2		79.6%		74.8%
AFFO per WA unit^1 2	$	0.22	$	0.24
AFFO payout ratio ^1 2		99.6%		90.7%
^1 Includes the REIT's share of joint venture investments.
^2 Refer to “Non-IFRS Measures” section above.