Slate Office REIT Reports Third Quarter 2017 Results

TORONTO, Nov. 07, 2017 (GLOBE NEWSWIRE) — 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 September 30, 2017. Senior management is hosting a conference call at 9:00 a.m. ET on Wednesday, November 8, 2017 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

“Building on momentum that commenced in the first half of 2017, Slate Office REIT executed on a number of initiatives that contributed to our goal of long-term value creation for unitholders,” said Scott Antoniak, the REIT’s Chief Executive Officer.

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

Quarterly Highlights

  • The REIT completed a total of 243,852 square feet of leasing, comprised of 129,839 square feet of renewals and 114,013 square feet of new lease deals.
  • Leasing spreads in the quarter were 10.9% above expiring or building in-place rents. In-place occupancy and weighted average lease term increased to 85.9% and 5.9 years, respectively, compared to 84.4% and 5.7 years as at Q2 2017.
  • The REIT completed a new 28,276 square foot 15 year lease with Cogeco at West Metro Corporate Centre, commencing in February 2018. During the quarter, as previously announced, the REIT also completed a new 5-year 58,178 square foot lease deal with Volta Labs at the Maritime Centre, taking a significant portion of the space previously occupied by Bell Aliant.
  • Subsequent to quarter end, at Commerce West, the REIT completed a new 14,000 square foot 10-year lease with a security firm and renewed a 51,000 square foot seven year lease with Trader Corp. Leasing at Commerce West is in excess of the REIT’s underwriting at the time of acquisition.
  • Commencing May 1, 2018, the REIT completed a blend and extend transaction at Fortis Place with Fortis Inc., including an additional 11,036 square feet of space on a 10 year term and extending their existing 23,040 square feet for approximately 3 years to be co-terminus with the new space.  With this transaction, the REIT has now leased 16,746 square feet of the 47,332 square foot headlease that expired June 30, 2017.
  • The redevelopment of 2285 Speakman Drive was completed and SNC-Lavalin Nuclear commenced its tenant fixturing at the property. This major redevelopment was completed on time and slightly ahead of budget.
  • During the quarter, the REIT refinanced West Metro Corporate Centre for a term of 4 years.  This financing provided an additional $20.0 million of capital, which was used to reduce the REIT’s revolver and increase liquidity.
  • On September 29, 2017, the REIT completed the $40.0 million mortgage fixed rate mortgage refinancing of the Johnson Building, maturing September 30, 2020. The financing was put in place following the completion of the REIT’s long-term lease with Johnson Insurance, which extends to 2030.
  • Net income as determined in accordance with IFRS was $23.6 million.
  • Rental revenue was $41.2 million, which is a 31.5% increase over the same period in the prior year.
  • Same property NOI was $14.5 million, representing an increase of $0.2 million over the second quarter of 2017.
  • AFFO was $10.7 million representing an increase of $1.7 million over the same period in 2016. Similarly, Core-FFO was $12.9 million, which is $2.4 million more than the same period in 2016.  These increases are attributable to the NOI contribution from acquisitions offset by higher interest expense from debt required to finance acquisitions.

Summary of Q3 2017 Results

  Three months ended September 30,  
(thousands of dollars, except per unit amounts) 2017
  2016   Change %  
Rental revenue $ 41,208   $ 31,330   31.5 %
Net operating income (“NOI”) 19,040   14,446   31.8 %
Net income and comprehensive income 23,607   2,984   691.1 %
       
Same-property NOI 13,707   14,207   (3.5 )%
       
Weighted average diluted number of trust units (000s) 62,231   41,449   50.1 %
FFO 12,372   9,989   23.9 %
FFO per unit 0.20   0.24   (16.7 )%
FFO payout ratio 94.2 % 78.7 % 15.5 %
Core FFO 12,923   10,507   23.0 %
Core FFO per unit 0.21   0.25   (16.0 )%
Core FFO payout ratio 90.2 % 74.8 % 15.4 %
AFFO 10,663   9,004   18.4 %
AFFO per unit 0.17   0.22   (22.7 )%
AFFO payout ratio 109.3 % 87.3 % 22.0 %
       
      June 30,  
  2017
  2016   Change %  
Total assets $ 1,353,127   $ 817,233   65.6 %
Total debt 793,765   493,496   60.8 %
Portfolio occupancy (1) 85.9 % 85.0 % 0.9 %
Loan to value ratio 58.7 % 60.5 % (1.8 )%
Net debt to adjusted EBITDA leverage 9.9x
  9.8x   0.7x  
Interest coverage ratio 3.0x
  3.2x   0.2x  
             

(1) Including redevelopment properties.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 a.m. ET on Wednesday, November 8, 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/2017/1108. A replay will be accessible until November 22, 2017 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 88339509) 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 NOI, same-property NOI, FFO, FFO payout ratio, Core-FFO, Core-FFO payout ratio, AFFO, AFFO payout ratio, adjusted EBITDA, net debt to 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 property expenses, prior to straight-line rent and other changes. Same-property NOI includes those properties owned by the REIT for each of the current period and the relevant comparative period.
  • FFO is defined as net income and comprehensive income adjusted for certain items including leasing costs amortized to revenue, change in fair value of properties, change in fair vale of financial instruments, disposition costs, depreciation of hotel asset, change in fair value of Class B LP units, distributions to Class B LP unitholders and subscription receipts equivalent amount.
  • Core-FFO is defined as FFO adjusted for the REIT’s share of lease payments received for its Data Centre asset, which for IFRS purposes is accounted for as a finance lease and removes the impact of mortgage discharge fees (if any).
  • AFFO is defined as FFO adjusted for certain items including guaranteed income supplements, amortization of deferred transaction costs, de-recognition and amortization of mark-to-market adjustments on mortgages refinanced or discharged, adjustments for interest rate subsidies received, recognition of the REIT’s share of lease payments received for its Data Centre asset, which for IFRS purposes is accounted for as a finance lease, amortization of straight-line rent and normalized direct leasing and capital costs.
  • FFO payout ratio, Core-FFO payout ratio and AFFO payout ratio are defined as distributions declared divided by FFO, Core-FFO and AFFO, respectively.
  • FFO per unit, Core-FFO per unit and AFFO per unit are defined as FFO, Core-FFO and AFFO divided by the weighted average diluted number of units outstanding, respectively.
  • Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, fair value gains (losses) from both financial instruments and investment properties, while also excluding non-recurring items such as transaction costs from dispositions, acquisitions or other events and adjusting income received from the Data Centre to cash received as opposed to finance income recorded for accounting purposes.
  • Net debt to adjusted EBITDA is calculated by dividing the aggregate amount of debt outstanding, less cash on hand, by annualized adjusted EBITDA.
  • Interest coverage ratio is defined as adjusted EBITDA divided by cash interest paid.

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, which readers should read when evaluating the measures included herein. 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.

For Further Information

Investor Relations
Tel: +1 416 644 4264
Slate Office REIT
E-mail: ir@slateam.com 


Calculation and Reconciliation of Non-IFRS Measures   

The tables below summarize a calculation of non-IFRS measures based on IFRS financial information.

The calculation of NOI is as follows:

  Three months ended September 30,  
  2017
  2016  
Rental revenue $ 41,208   $ 31,330  
Property operating expenses (21,629 ) (16,362 )
Straight-line rents and other changes (539 ) (522 )
NOI $ 19,040   $ 14,446  
     
The reconciliation of net income and comprehensive income to FFO, Core-FFO and AFFO is as follows:
     
  Three months ended September 30,  
(thousands of dollars, except per unit amounts) 2017
  2016  
Net income and comprehensive income $ 23,607   $ 2,984  
Add (deduct):    
Leasing costs amortized to revenue 384   168  
Change in fair value of properties (12,070 ) 1,497  
Change in fair value of financial instruments (969 ) (96 )
Disposition costs 13   15  
Depreciation of hotel asset 204   149  
Change in fair value of Class B LP units 212   4,281  
Distributions to Class B unitholders 991   991  
FFO (1) 12,372   9,989  
Finance income on finance lease receivable (973 ) (1,006 )
Finance lease payments received 1,524   1,524  
Core-FFO (1) 12,923   10,507  
Guaranteed income supplements 40   352  
Amortization of deferred transaction costs 624   351  
Amortization of debt mark-to-market adjustments (151 ) (127 )
Interest rate subsidy 108   108  
Amortization of straight-line rent (923 ) (690 )
Normalized direct leasing and capital costs (1,958 ) (1,497 )
AFFO (1) $ 10,663   $ 9,004  
     
Weighted average number of diluted units outstanding (000s) 62,231   41,449  
FFO per unit (1) $ 0.20   $ 0.24  
Core-FFO per unit (1) 0.21   0.25  
AFFO per unit (1) $ 0.17   $ 0.22  
FFO payout ratio (1) 94.2 % 78.7 %
Core-FFO payout ratio (1) 90.2 % 74.8 %
AFFO payout ratio (1) 109.3 % 87.3 %

(1)  Refer to “Non-IFRS measures” section above.

The reconciliation of cash flow from operating activities to FFO, Core-FFO and AFFO is as follows:

  Three months ended September 30,  
  2017
  2016  
Cash flow from operating activities 5,924   12,476  
Add (deduct):    
Leasing costs amortized to revenue 384   168  
Disposition costs 13   15  
Subscription receipts equivalent amount (1)    
Working capital items 4,994   (4,149 )
Straight-line rent and other changes 539   522  
Interest and other finance costs (7,042 ) (5,005 )
Interest paid 6,569   4,971  
Distributions paid to Class B unitholders 991   991  
FFO(1) $ 12,372   $ 9,989  
Finance income on finance lease receivable (973 ) (1,006 )
Finance lease payments received 1,524   1,524  
Core-FFO(1) $ 12,923   $ 10,507  
Guaranteed income supplements 40   352  
Amortization of deferred transaction costs 624   351  
Amortization of debt mark-to-market adjustments (151 ) (127 )
Interest rate subsidy 108   108  
Amortization of straight-line rent (923 ) (690 )
Normalized direct leasing and capital costs (1,958 ) (1,497 )
AFFO (1) $ 10,663   $ 9,004  

(1) Refer to “Non-IFRS measures” section above.

The calculation of adjusted EBITDA is as follows:

  Three months ended September 30,  
  2017   2016  
Net income and comprehensive income 23,607   2,984  
Finance income and finance lease receivable (973 ) (1,006 )
Net operating income from the Data Centre 1,525   1,524  
Interest income (15 ) (20 )
Interest and finance costs 7,042   5,005  
Change in fair value of properties (12,070 ) 1,497  
Change in fair value of financial instruments (969 ) (96 )
Disposition costs 13   15  
Depreciation of hotel asset 204   149  
Change in fair value of Class B LP units 212   4,281  
Distributions to Class B LP unitholders 991   991  
Adjusted EBITDA (1) 19,567   15,324  

(1)  Refer to “Non-IFRS measures” section above.

The calculation of net debt is as follows:

  Three months ended September 30,  
  2017 2016  
Debt, non-current 599,509 494,332  
Debt, current 194,256 109,339  
Debt 793,765 603,671  
Less: cash on hand 20,787 2,973  
Net debt 772,978 600,698  
       

The calculation of net debt to adjusted EBITDA is as follows:

  Three months ended September 30,
  2017 2016
Net debt 772,978 600,698
Adjusted EBITDA (2) 78,268 61,296
Net debt to Adjusted EBITDA (1) 9.9x 9.8x

(1)  Refer to “Non-IFRS measures” section above.
(2)  Adjusted EBITDA for the three months is based on actuals annualized, using the following formula: (Adjusted EBITDA for period / No. quarters in period x 4).

The interest coverage ratio is calculated as follows:

  Three months ended September 30,
  2017 2016
Adjusted EBITDA 19,567 15,324
Interest expense 6,569 4,781
Interest coverage ratio (1) 3.0x 3.2x

(1)  Refer to “Non-IFRS measures” section above.