TORONTO, ON–(Marketwired – August 03, 2017) – Slate Office REIT (TSX: SOT.UN) (the “REIT”), a leading owner of office properties in Canada, announced today its financial results for the three months ended June 30, 2017. Senior management is hosting a conference call at 9:00 a.m. ET on Friday, August 4, 2017 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.
“Slate Office REIT was very active in the second quarter of 2017,” said Scott Antoniak, the REIT’s Chief Executive Officer. “Completing a number of strategic transactions that bolstered the REIT’s position as a best in class owner and operator of office properties.”
For the CEO’s letter to unitholders for the quarter, please follow the link here.
Quarterly Highlights
- Completed 145,957 square feet of leasing in the quarter, comprised of 53,473 square feet of new leases and 92,484 square feet of lease renewals. Subsequent to quarter end, the REIT completed a new 5-year, 58,178 square foot lease deal with Volta Labs at the Maritime Centre. Volta Labs will occupy a significant portion of the space previously occupied by Bell Aliant.
- The REIT acquired four office properties in the quarter; West Metro Corporate Centre and 401-405 The West Mall in Etobicoke, ON, and 250 King and 460 Two Nations in Fredericton, NB, for an aggregate purchase price of $260.0 million, before adjustments.
- The REIT raised $130.0 million of equity to fund the acquisitions, consisting of a $10.0 million private placement and the issuance of 14,820,000 trust units at $8.10 per unit.
- In connection with the 250 King and 460 Two Nations acquisitions, the REIT completed the renewal of a $105.0 million term loan and increased the principal amount by $15.0 million to $120.0 million extended until June 30, 2019. The loan-to-value ratios on these two assets have exceeded management’s underwriting expectations as at acquisition.
- Subsequent to quarter end, the REIT completed an up-financing and 4 year extension of the recently acquired West Metro Corporate Centre. The new financing provides an additional $20.0 million in financing, the proceeds of which were used to reduce the REIT’s credit facilities and increase the REIT’s liquidity.
- The REIT disposed of a vacant industrial building located at 7001 96th Street in Grande Prairie, AB for $4.4 million. The sale demonstrates the REIT’s ability to dispose of non-core assets and re-deploy capital to achieve balance sheet optimization.
- Rental revenue increased by $8.0 million to $36.2 million compared to the second quarter of 2016.
- Net operating income (“NOI”) was $17.1 million, an increase of $4.4 million compared to the same period in 2016.
- Same property NOI was $14.3 million, representing an increase of $0.1 million over the first quarter of 2017.
- Funds from operations (“FFO”) increased $2.3 million to $11.4 million compared to the same period in the prior year. On a per unit basis, FFO was $0.20 for the second quarter.
- Adjusted FFO (“AFFO”) increased $2.5 million to $10.7 million or $0.19 per unit, compared to the same period in 2016. The increase is attributed to the NOI contribution from acquisitions activity offset by higher interest expense from debt required to finance the acquisitions.
- AFFO payout ratio was adversely impacted by the equity offering which was completed prior to the closing of the acquisitions. As such, the NOI contributions from the new properties were not fully realized during the quarter. The payout ratio is expected to improve in the third quarter as the full impact of the acquisition will be reflected in operating results.
Summary of Q2 2017 Results
| Three months ended June 30, | |||||||||||
| (thousands of dollars, except per unit amounts) | 2017 | 2016 | Change % | ||||||||
| Rental revenue | $ | 36,230 | $ | 28,197 | 28.5 | % | |||||
| Net operating income | 17,131 | 12,760 | 34.3 | % | |||||||
| Net income and comprehensive income | 3,482 | 15,244 | (77.2 | )% | |||||||
| Same-property NOI | 11,979 | 12,690 | (5.6 | )% | |||||||
| Weighted average number of trust units | 57,103 | 35,674 | 60.1 | % | |||||||
| FFO | 11,405 | 9,078 | 25.6 | % | |||||||
| FFO per unit | 0.20 | 0.25 | (20.0 | )% | |||||||
| Core FFO | 11,949 | 9,588 | 24.6 | % | |||||||
| Core FFO per unit | 0.21 | 0.27 | (22.2 | )% | |||||||
| AFFO | 10,694 | 8,192 | 30.5 | % | |||||||
| AFFO per unit | 0.19 | 0.23 | (17.4 | )% | |||||||
| AFFO payout ratio | 108.9 | % | 84.4 | % | 24.5 | % | |||||
| June 30, | |||||||||||
| 2017 | 2016 | Change % | |||||||||
| Total assets | $ | 1,302,622 | $ | 817,233 | 59.4 | % | |||||
| Total debt | 752,312 | 493,496 | 52.4 | % | |||||||
| Portfolio occupancy (1) | 84.4 | % | 85.0 | % | (0.6 | )% | |||||
| Loan to value ratio | 57.8 | % | 60.5 | % | (2.7 | )% | |||||
| Net debt to adjusted EBITDA leverage | 10.7x | 10.2x | 0.7x | ||||||||
| Interest coverage ratio | 3.1x | 3.3x | 0.2x | ||||||||
| (1) Excluding redevelopment properties. |
Conference Call and Webcast
Senior management will host a live conference call at 9:00 a.m. ET on Friday, August 4, 2017 to discuss the results and ongoing business initiatives of the REIT.
The conference call can be accessed by dialing (647) 427-2311 or 1 (866) 521-4909. Additionally, the conference call will be available via simultaneous audio found at http://www.snwebcastcenter.com/webcast/slate/2017/0804. A replay will be accessible until August 18, 2017 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 44283866) approximately two hours after the live event.
About Slate Office REIT (TSX: SOT.UN)
Slate Office REIT is an open-ended real estate investment trust. The REIT’s portfolio currently comprises 38 strategic and well-located real estate assets located primarily across Canada’s major population centres. The REIT is focused on maximizing value through internal organic rental and occupancy growth and strategic acquisitions. Visit slateofficereit.com to learn more.
About Slate Asset Management L.P.
Slate Asset Management L.P. is a leading real estate investment platform with over $4 billion in assets under management. Slate is a value-oriented manager and a significant sponsor of all of its private and publicly-traded investment vehicles, which are tailored to the unique goals and objectives of its investors. The firm’s careful and selective investment approach creates long-term value with an emphasis on capital preservation and outsized returns. Slate is supported by exceptional people, flexible capital and a proven ability 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 statements herein may be forward-looking statements within the meaning of applicable securities laws. These statements reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance and business prospects and opportunities of the REIT including expectations for the current financial year, and include, but are not limited to, statements with respect to management’s beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Statements that contain words such as “could”, “should”, “would”, “anticipate”, “expect”, “believe”, “plan”, “intend”, “will”, “may”, “might” and similar expressions or statements relating to matters that are not historical facts constitute forward-looking statements.
These forward-looking statements are not guarantees of future events or performance and, by their nature, are based on the REIT’s current estimates and assumptions, which are subject to significant risks and uncertainties. Forward-looking statements contained herein are made as the date hereof and accordingly are subject to change after such date. The REIT does not undertake to update any forward-looking statements that are contained herein except as expressly required by applicable securities laws.
Non-IFRS Measures
We disclose a number of financial measures in this news release that are not measures used under IFRS, including net operating income, same property net operating income, funds from operations, core funds from operations, adjusted funds from operations, adjusted funds from operations payout ratio, adjusted EBITDA, debt to adjusted EBITDA and interest coverage ratio, in addition to certain measures on a per unit basis. 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. Reconciliations of these non-IFRS measures to the most directly comparable financial measures calculated and presented in accordance with IFRS are included within this news release.
Calculation and Reconciliation of Non-IFRS Measures
| Three months ended June 30, | ||||||||
| (thousands of dollars, except per unit amounts) | 2017 | 2016 | ||||||
| Rental revenue | $ | 36,230 | $ | 28,197 | ||||
| Property operating expenses | (18,833 | ) | (14,994 | ) | ||||
| Straight-line rents and other changes | (266 | ) | (443 | ) | ||||
| NOI | $ | 17,131 | $ | 12,760 | ||||
| Net income and comprehensive income | $ | 3,482 | $ | 15,244 | ||||
| Add (deduct): | ||||||||
| Leasing costs amortized to revenue | 239 | 197 | ||||||
| Change in fair value of properties | 2,389 | (6,470 | ) | |||||
| Change in fair value of financial instruments | 3,266 | 247 | ||||||
| Disposition costs | 133 | 206 | ||||||
| Depreciation of hotel asset | 191 | 143 | ||||||
| Change in fair value of Class B LP units | (212 | ) | (1,480 | ) | ||||
| Distributions to Class B unitholders | 991 | 991 | ||||||
| Subscription receipts equivalent amount (1) | 926 | – | ||||||
| FFO | 11,405 | 9,078 | ||||||
| Finance income on finance lease receivable | (981 | ) | (1,015 | ) | ||||
| Finance lease payments received | 1,525 | 1,525 | ||||||
| Core-FFO | 11,949 | 9,588 | ||||||
| Guaranteed income supplements | 634 | 356 | ||||||
| Amortization of deferred transaction costs | 382 | 273 | ||||||
| Amortization of debt mark-to-market adjustments | (134 | ) | (65 | ) | ||||
| Interest rate subsidy | 108 | – | ||||||
| Amortization of straight-line rent | (505 | ) | (640 | ) | ||||
| Normalized direct leasing and capital costs | (1,740 | ) | (1,320 | ) | ||||
| AFFO | $ | 10,694 | $ | 8,192 | ||||
| Weighted average number of diluted units outstanding (000s) | 57,103 | 35,674 | ||||||
| FFO per unit | $ | 0.20 | $ | 0.25 | ||||
| Core-FFO per unit | 0.21 | 0.27 | ||||||
| AFFO per unit | $ | 0.19 | $ | 0.23 | ||||
| AFFO payout ratio | 108.9 | % | 84.4 | % | ||||
| (1) On April 25, 2017 each subscription receipt issued by the REIT on March 15, 2016 was exchanged for one unit and a cash distribution equivalent payment of $0.0625 (being equal to the aggregate amount of distributions paid by the REIT per unit for which record dates have occurred since the date of the underwriting agreement in respect of the subscription receipt offering). The cash distribution equivalent payment of $0.9 million has been recorded as an interest and finance cost. |
For Further Information
Investor Relations
Tel: +1 416 644 4264
Slate Office REIT
E-mail: ir@slateam.com