Slate Grocery REIT Reports Second Quarter 2024 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, 2024.

"Favorable fundamentals in the grocery-anchored sector continue to provide tailwinds for our portfolio of high-quality grocery real estate," said Blair Welch, Chief Executive Officer of Slate Grocery REIT. "We are seeing the impact of several consecutive quarters of strong leasing at high spreads on our same-property net operating income, which increased 3.5 percent over the past year. At the same time, our team continues to maintain strong leasing volumes at attractive double-digit spreads. With vacancy and new supply hovering at historical lows, we see runway to continue growing revenue and increasing value for our unitholders."

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

Highlights

• Completed 706,811 square feet of total leasing in the quarter at attractive spreads that drove revenue growth
  • New deals were completed at 28.0% above comparable average in-place rent, and non-option renewals at 12.8% above expiring rents
  • Portfolio occupancy remained stable at 94.2% as at quarter end
  • Adjusting for completed redevelopments, same-property Net Operating Income ("NOI") increased by $1.4 million or 3.5% year-over-year
  • At $12.56 per square foot, average rent in the REIT's portfolio remains well below market, providing significant runway for continued rent increases and NOI growth
• Continued to prudently manage balance sheet to ensure the REIT remains protected in the current interest rate environment
  • 94.8% of the REIT's total debt is fixed, with a weighted average interest rate of 4.5%, providing positive leverage and stability for the REIT
  • The REIT continues to actively manage upcoming debt maturities with productive lender conversations ongoing
• The REIT's units continue to trade at a discount to Net Asset Value ("NAV"), presenting a compelling investment opportunity for unitholders looking for an attractive total return
  • On June 27, 2024, the REIT closed the sale of a stabilized non-grocery anchored property at a premium to IFRS book value, which further validates the REIT’s NAV
  • As at June 30, 2024, the REIT's unit price represents a 42.8% discount to NAV

Summary of Q2 2024 Results

	Three months ended June 30,
(thousands of U.S. dollars, except per unit amounts)		2024		2023	Change %
Rental revenue	$	51,818	$	50,324		3.0%
NOI^1 2	$	41,442	$	40,313		2.8%
Net income ^2	$	14,003	$	18,948		(26.1)%
Same-property NOI (3 month period, 112 properties) ^1 2	$	40,022	$	39,006		2.6%
Same-property NOI (12 month period, 97 properties) ^1 2	$	123,145	$	122,583		0.5%
New leasing (square feet) ^2		84,679		143,462		(41.0)%
New leasing spread ^2		28.0%		23.7%		18.1%
Total leasing (square feet) ^2		706,811		1,002,279		(29.5)%
Total leasing spread ^2		10.0%		7.1%		40.8%
New leasing – anchor / junior anchor ^2		22,500		92,574		(75.7)%
Weighted average number of units outstanding ("WA units")		60,327		60,897		(0.9)%
FFO^1 2	$	17,472	$	16,513		5.8%
FFO per WA units^1 2	$	0.29	$	0.27		7.4%
FFO payout ratio^1 2		74.2%		79.3%		(6.4)%
AFFO ^1 2	$	14,095	$	13,603		3.6%
AFFO per WA units^1 2	$	0.23	$	0.22		4.6%
AFFO payout ratio^1 2		92.0%		96.3%		(4.5)%
(thousands of U.S. dollars, except per unit amounts)	June 30, 2024		December 31, 2023		Change %
Total assets, IFRS	$	2,228,532	$	2,235,798		(0.3)%
Total assets, proportionate interest ^1	$	2,439,905	$	2,448,127		(0.3)%
Debt, IFRS	$	1,155,591	$	1,161,756		(0.5)%
Debt, proportionate interest ^1	$	1,361,187	$	1,369,053		(0.6)%
Net asset value per unit	$	13.98	$	13.97		0.1%
Number of properties ^2		116		117		(0.9)%
Portfolio occupancy^2		94.2%		94.7%		(0.5)%
Debt / GBV ratio		51.9%		52.0%		(0.2)%
Interest coverage ratio^1	2.76x		2.72x			1.5%
^(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 8, 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://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=219BE7E7-2377-41C8-98AC-95B17EF427F0&LangLocaleID=1033. A replay will be accessible until August 22, 2024 via the REIT’s website or by dialing [phone] or 1 [phone] (access code 27850#) 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. We focus on fundamentals with the objective of creating long-term value for our investors and partners. Slate’s platform focuses on four areas of real assets, including real estate equity, real estate credit, real estate securities, and infrastructure. 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, and follow Slate Asset Management on LinkedIn, X (Twitter), and Instagram.

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 investments. 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/disposition costs, change in fair value of properties, change in fair value of financial instruments, deferred income taxes, unit income (expense), adjustments for equity investments and IFRIC 21 property tax adjustments.
• AFFO is defined as FFO adjusted for straight-line rental revenue and revenue 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)		2024		2023
Rental revenue	$	51,818	$	50,324
Straight-line rent revenue		(30)		(156)
Property operating expenses		(9,134)		(8,835)
IFRIC 21 property tax adjustment		(6,696)		(6,655)
Contribution from joint venture investments		5,484		5,635
NOI^1 2	$	41,442	$	40,313
Cash flow from operations	$	19,582	$	22,721
Changes in non-cash working capital items		(1,224)		(4,639)
Disposition costs		290		—
Finance charge and mark-to-market adjustments		(436)		(498)
Interest, net and TIF note adjustments		22		29
Adjustments for joint venture investments		2,665		2,711
Non-controlling interest		(3,678)		(4,019)
Taxes on dispositions		297		—
Capital expenditures		(1,407)		(1,518)
Leasing costs		(611)		(688)
Tenant improvements		(1,405)		(496)
AFFO^1 2	$	14,095	$	13,603
Net income^2	$	14,003	$	18,948
Change in fair value of financial instruments		(272)		(1,512)
Disposition costs		290		—
Change in fair value of properties		11,706		10,413
Deferred income tax expense (recovery)		1,570		497
Unit income		(325)		(132)
Adjustments for joint venture investments		1,348		(357)
Non-controlling interest		(4,449)		(4,689)
Taxes on dispositions		297		—
IFRIC 21 property tax adjustment		(6,696)		(6,655)
FFO^1 2	$	17,472	$	16,513
Straight-line rental revenue		(30)		(156)
Capital expenditures		(1,407)		(1,518)
Leasing costs		(611)		(688)
Tenant improvements		(1,405)		(496)
Adjustments for joint venture investments		(695)		(722)
Non-controlling interest		771		670
AFFO^1 2	$	14,095	$	13,603
^(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)		2024		2023
NOI^1 2	$	41,442	$	40,313
General and administrative expenses		(3,949)		(3,785)
Cash interest, net		(13,560)		(12,045)
Finance charge and mark-to-market adjustments		(436)		(498)
Current income tax recovery (expense)		518		(737)
Adjustments for joint venture investments		(2,819)		(2,924)
Non-controlling interest		(3,678)		(4,019)
Capital expenditures		(1,407)		(1,518)
Leasing costs		(611)		(688)
Tenant improvements		(1,405)		(496)
AFFO^1 2	$	14,095	$	13,603
^(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)		2024		2023
Net income ^1	$	14,003	$	18,948
Interest and financing costs		13,996		12,543
Change in fair value of financial instruments		(272)		(1,512)
Disposition costs		290		—
Change in fair value of properties		11,706		10,413
Deferred income tax expense		1,570		497
Current income tax (recovery) expense		(221)		737
Unit income		(325)		(132)
Adjustments for joint venture investments		3,472		1,845
Straight-line rent revenue		(30)		(156)
IFRIC 21 property tax adjustment		(6,696)		(6,655)
Adjusted EBITDA^1 2	$	37,493	$	36,528
NOI^1 2		41,442		40,313
General and administrative expenses		(3,949)		(3,785)
Adjusted EBITDA^1 2	$	37,493	$	36,528
Cash interest paid		(13,582)		(12,074)
Interest coverage ratio^1 2	2.76x		3.03x
WA units		60,327		60,897
FFO per WA unit^1 2	$	0.29	$	0.27
FFO payout ratio ^1 2		74.2%		79.3%
AFFO per WA unit^1 2	$	0.23	$	0.22
AFFO payout ratio ^1 2		92.0%		96.3%
^(1) Includes the REIT's share of joint venture investments.
^(2) Refer to “Non-IFRS Measures” section above.

	June 30, 2024						December 31, 2023
(in thousands of U.S. dollars, except per unit amounts)	Statement of Financial Position		Joint Venture Investments		Proportionate Share (Non-IFRS)		Statement of Financial Position		Joint Venture Investments		Proportionate Share (Non-IFRS)
ASSETS
Non-current assets
Properties	$	2,049,811	$	308,800	$	2,358,611	$	2,062,599	$	307,300	$	2,369,899
Joint venture investments		111,063		(111,063)		—		107,101		(107,101)		—
Interest rate swaps		14,261		531		14,792		7,652		580		8,232
Other assets		556		—		556		718		4,268		4,986
	$	2,175,691	$	198,268	$	2,373,959	$	2,178,070	$	205,047	$	2,383,117
Current assets
Cash		21,491		5,752		27,243		23,587		4,420		28,007
Accounts receivable		22,211		1,525		23,736		22,172		1,813		23,985
Other assets		7,083		5,125		12,208		6,985		—		6,985
Prepaids		2,056		703		2,759		4,984		1,049		6,033
	$	52,841	$	13,105	$	65,946	$	57,728	$	7,282	$	65,010
Total assets	$	2,228,532	$	211,373	$	2,439,905	$	2,235,798	$	212,329	$	2,448,127
LIABILITIES
Non-current liabilities
Debt	$	593,801	$	203,510	$	797,311	$	859,637	$	205,831	$	1,065,468
Deferred income taxes		150,776		2		150,778		146,651		2		146,653
Other liabilities		3,805		128		3,933		4,346		482		4,828
	$	748,382	$	203,640	$	952,022	$	1,010,634	$	206,315	$	1,216,949
Current liabilities
Debt		561,790		2,086		563,876		302,119		1,466		303,585
Accounts payable and accrued liabilities		40,624		5,647		46,271		43,217		4,548		47,765
Exchangeable units of subsidiaries		7,264		—		7,264		8,269		—		8,269
Distributions payable		4,323		—		4,323		4,323		—		4,323
	$	614,001	$	7,733	$	621,734	$	357,928	$	6,014	$	363,942
Total liabilities	$	1,362,383	$	211,373	$	1,573,756	$	1,368,562	$	212,329	$	1,580,891
EQUITY
Unitholders' equity	$	685,644	$	—	$	685,644	$	687,443	$	—	$	687,443
Non-controlling interest		180,505		—		180,505		179,793		—		179,793
Total equity	$	866,149	$	—	$	866,149	$	867,236	$	—	$	867,236
Total liabilities and equity	$	2,228,532	$	211,373	$	2,439,905	$	2,235,798	$	212,329	$	2,448,127