Slate Grocery REIT Reports Fourth Quarter and Year End 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 twelve months ended December 31, 2023.

“In a year that challenged much of the broader real estate industry, our portfolio of grocery-anchored real estate continued to demonstrate exceptional resilience and operational performance,” said Blair Welch, Chief Executive Officer of Slate Grocery REIT. “Our team set a new high-water mark for annual leasing volume in 2023 at some of our highest rental spreads on record, which we expect to convert to healthy NOI growth in the coming years. Looking ahead, we believe our below market in-place rents, coupled with favorable supply-demand dynamics in the grocery-anchored sector, present the REIT with significant runway to further grow our revenue and enhance the durability of our income.”

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

Highlights

• Completed 2.9 million square feet of total leasing in the year at outsized rental spreads.
  • Completed 637,439 square feet of leasing in the fourth quarter; new deals were completed at 30.9% above comparable average in-place rent and non-option renewals at 15.6% above expiring rent. On a year-to-date basis, the REIT's new leasing spread is 23.1% and total leasing spread is 10.4%.
  • Strong leasing drove a 150-basis point increase in portfolio occupancy year-over-year to 94.7%.
  • Adjusting for completed redevelopments, same-property Net Operating Income ("NOI") increased by $2.0 million or 1.5% on a trailing-twelve month basis.
• Prudently managed balance sheet to ensure the REIT remains protected in the current interest rate environment.
  • In November, the REIT amended a $137.5 million interest rate swap to remove the existing cancellation option and lock in the maturity date of July 2027, thereby limiting the REIT's exposure to floating rate debt.
  • 94.6% of the REIT's total debt is fixed, with a weighted average interest rate of 4.4%, providing positive leverage and stability to the REIT.
  • At $12.41 per square foot, average rent in the REIT's portfolio remains well below market, providing significant runway for continued rent increases and 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 year-end, the REIT's unit price indicates an implied capitalization rate of 7.9% based on trailing twelve-month NOI, representing a 33.5% discount to NAV.

Summary of Q4 2023 Results

	Three months ended December 31,
(thousands of U.S. dollars, except per unit amounts)			2023		2022	Change %
Rental revenue		$	51,539	$	50,655	1.7%
NOI^1 2		$	40,139	$	40,599	(1.1)%
Net income ^2		$	5,177	$	18,506	(72.0)%
Same-property NOI (3 month period, 113 properties) ^1		$	38,564	$	39,023	(1.2)%
Same-property NOI (12 month period, 96 properties) ^1		$	119,233	$	118,636	0.5%
New leasing (square feet) ^2			160,792		118,159	36.1%
New leasing spread ^2			30.9%		10.8 %	20.1%
Total leasing (square feet) ^2			637,439		456,724	39.6%
Total leasing spread ^2			15.4%		7.0 %	8.4%
New leasing – anchor / junior anchor ^2			106,455		22,095	381.8%
Weighted average number of units outstanding ("WA units")			60,285		61,468	(1.9)%
FFO^1 2		$	15,991	$	16,799	(4.8)%
FFO per WA units^1 2		$	0.27	$	0.27	—%
FFO payout ratio^1 2			81.1%		78.8 %	2.3%
AFFO ^1 2		$	13,029	$	13,789	(5.5)%
AFFO per WA units^1 2		$	0.22	$	0.22	—%
AFFO payout ratio^1 2			99.5%		96.0 %	3.7%
(thousands of U.S. dollars, except per unit amounts)			December 31, 2023		December 31, 2022	Change %
Total assets, IFRS		$	2,235,798	$	2,270,400	(1.5)%
Total assets, proportionate interest ^1		$	2,448,127	$	2,485,131	(1.5)%
Debt, IFRS		$	1,161,756	$	1,131,487	2.7%
Debt, proportionate interest ^1		$	1,369,053	$	1,341,465	2.1%
Net asset value per unit		$	13.97	$	14.65	(4.6)%
Number of properties ^2			117		117	—%
Portfolio occupancy^2			94.7%		93.2%	1.5 %
Debt / GBV ratio			52.0%		49.8%	2.2%
Interest coverage ratio^1		2.87x		2.89x		(0.7)%
^(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 February 14, 2024 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=1651238&tp_key=bcd585b97b. A replay will be accessible until February 28, 2024 via the REIT’s website or by dialing [phone] or [phone] (access code 968854#) 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. 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 income (expense), 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 December 31,
(in thousands of U.S. dollars, except per unit amounts)		2023		2022
Rental revenue		$	51,539	$	50,655
Straight-line rent revenue			(95)		(175)
Property operating expenses			(9,209)		(7,352)
IFRIC 21 property tax adjustment			(7,360)		(7,278)
Contribution from joint venture investments			5,264		4,749
NOI^1 2		$	40,139	$	40,599
Cash flow from operations		$	11,421	$	6,178
Changes in non-cash working capital items			5,979		11,389
Transaction costs			—		1,480
Finance charge and mark-to-market adjustments			(525)		(703)
Interest, net and TIF note adjustments			22		39
Adjustments for joint venture investments			2,523		1,908
Non-controlling interest			(3,444)		(3,338)
Capital expenditures			(405)		(2,251)
Leasing costs			(952)		(373)
Tenant improvements			(1,590)		(540)
AFFO^1 2		$	13,029	$	13,789
Net income^1 2		$	5,177	$	18,506
Change in fair value of financial instruments			4,014		—
Transaction costs			—		1,480
Change in fair value of properties			12,475		(2,214)
Deferred income tax expense			1,212		3,714
Unit expense			1,291		2,664
Adjustments for joint venture investments			3,288		3,980
Non-controlling interest			(4,106)		(4,053)
IFRIC 21 property tax adjustment			(7,360)		(7,278)
FFO^1 2		$	15,991	$	16,799
Straight-line rental revenue			(95)		(175)
Capital expenditures			(405)		(2,251)
Leasing costs			(952)		(373)
Tenant improvements			(1,590)		(540)
Adjustments for joint venture investments			(582)		(386)
Non-controlling interest			662		715
AFFO^1 2		$	13,029	$	13,789
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of joint venture investments.
	Three months ended December 31,
(in thousands of U.S. dollars, except per unit amounts)		2023		2022
NOI^1 2		$	40,139	$	40,599
General and administrative expenses			(4,016)		(4,069)
Cash interest, net			(13,254)		(13,087)
Finance charge and mark-to-market adjustments			(525)		(703)
Current income tax (expense) recovery			(183)		392
Adjustments for joint venture investments			(2,739)		(2,841)
Non-controlling interest			(3,446)		(3,338)
Capital expenditures			(405)		(2,251)
Leasing costs			(952)		(373)
Tenant improvements			(1,590)		(540)
AFFO^1 2		$	13,029	$	13,789
^(1) Refer to “Non-IFRS Measures” section above.
^(2) Includes the REIT's share of joint venture investments.

	Three months ended December 31,
(in thousands of U.S. dollars, except per unit amounts)		2023		2022
Net income ^1		$	5,177	$	18,506
Interest and financing costs			13,779		13,790
Change in fair value of financial instruments			4,014		—
Transaction costs			—		1,480
Change in fair value of properties			12,475		(2,214)
Deferred income tax expense			1,212		3,714
Current income tax (expense) recovery			183		(392)
Unit expense			1,291		2,664
Adjustments for joint venture investments			5,447		6,435
Straight-line rent revenue			(95)		(175)
IFRIC 21 property tax adjustment			(7,360)		(7,278)
Adjusted EBITDA^1 2		$	36,123	$	36,530
NOI^1 2			40,139		40,599
General and administrative expenses			(4,016)		(4,069)
Adjusted EBITDA^1 2		$	36,123	$	36,530
Cash interest paid			(13,276)		(13,127)
Interest coverage ratio^1 2		2.72x		2.78x
WA units			60,285		61,468
FFO per WA unit^1 2		$	0.27	$	0.27
FFO payout ratio ^1 2			81.1%		78.8%
AFFO per WA unit^1 2		$	0.22	$	0.22
AFFO payout ratio ^1 2			99.5%		96.0%
^(1) Includes the REIT's share of joint venture investments.
^(2) Refer to “Non-IFRS Measures” section above.