Home > News > Slate Office REIT Reports First Quarter 2018 Results
Wednesday, May 9, 2018

Slate Office REIT Reports First Quarter 2018 Results

TORONTO, ON - Slate Office REIT (TSX: SOT.UN) (the "REIT") announced today its financial results for the three months ended March 31, 2018. Senior management is hosting a conference call at 9:00 a.m. ET on Wednesday, May 9, 2018 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

“Our strategy remains simple and is transferable across markets,” said Scott Antoniak, the REIT’s Chief Executive Officer. “We acquire well located office assets at a discount to replacement cost, lever the Slate Asset Management L.P. platform to provide best-in-class, hands-on strategic management and create value through increased occupancy, higher rents, extended lease term and reduced risk.”

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

First Quarter 2018 Highlights

  • The REIT completed a total of 225,233 square feet of leasing, comprised of 170,903 square feet of renewals and 54,330 square feet of new lease deals.

  • Leasing spreads in the quarter were 14.0% above expiring or building in-place rents and in-place occupancy increased to 85.9% compared to 85.8% as at Q4 2017.

  • Same property net operating income (“NOI”) was up 5.2% in the first quarter of 2018 compared to the same period in the prior year. 

  • The Maritime Centre in Halifax, Nova Scotia continues to see strong leasing demand. After a competitive tender process, the REIT was able to renew the Province of Nova Scotia for 81,300 square feet on a long-term basis.

  • The REIT has completed $296.6 million of off-market acquisitions in the first quarter of 2018 including 20 South Clark, the REIT’s first U.S. acquisition, and the 7 asset portfolio in the Greater Toronto Area and Atlantic Canada.

  • Subsequent to quarter end, the REIT entered into a definitive agreement to dispose of 135 Queen’s Plate in Toronto, Ontario for $16.7 million, which was approximately 10% higher than the REIT's IFRS book value at December 31, 2017.

  • During the quarter, the REIT completed a $103.5 million equity financing and a $28.8 million convertible debenture offering, the proceeds were used, in part, to finance the aforementioned acquisitions.

  • Net income was $7.9 million, a decrease of $0.5 million compared to Q1 2017.

  • Rental revenue was $44.3 million, an increase of $1.9 million compared to Q4 2017.

  • Adjusted funds from operations ("AFFO") was $10.1 million an increase of $0.6 million compared to Q4 2017.

  • Core funds from operations ("Core FFO") was $11.9 million, an increase of $0.1 million compared to Q4 2017.

Summary of Q1 2018 Results

 

Three months ended March 31,

(thousands of dollars, except per unit amounts)

                2018

                2017

Change %

Rental revenue

$

44,289

 

$

32,318

 

37.0

%

Net operating income ("NOI")

20,112

 

14,175

 

41.9

%

Net income

7,904

 

8,442

 

(6.4)

%

 

 

 

 

Same-property NOI

14,961

 

14,218

 

5.2

%

 

 

 

 

Weighted average diluted number of trust units (000s)

62,874

 

46,101

 

36.4

%

Funds from operations ("FFO")

11,292

 

9,495

 

18.9

%

FFO per unit

0.18

 

0.21

 

(14.3)

%

FFO payout ratio

110.4

%

91.0

%

19.4

%

Core FFO

11,862

 

10,030

 

18.3

%

Core FFO per unit

0.19

 

0.22

 

(13.6)

%

Core FFO payout ratio

105.1

%

86.1

%

19.0

%

AFFO

10,108

 

8,842

 

14.3

%

AFFO per unit

0.16

 

0.19

 

(15.8)

%

AFFO payout ratio

123.4

%

97.7

%

25.7

%

 

 

 

 

 

 

 

December 31,

 

              2018

                2017

Change %

Total assets

$

1,660,947

 

$

1,164,104

 

42.7

%

Total debt

1,003,951

 

621,896

 

61.4

%

Portfolio occupancy (1)

85.9

%

84.0

%

1.9

%

Loan to value ratio

60.5

%

58.3

%

2.2

%

Net debt to adjusted EBITDA leverage

12.4x

10.4x

2.0x

Interest coverage ratio

2.5x

3.0x

(0.5x)

(1) Including redevelopment properties.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 a.m. ET on Wednesday, May 9, 2018 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/2018/0509. A replay will be accessible until May 23, 2018 via the REIT's website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 1728818) 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 45 strategic and well-located real estate assets located primarily across Canada's major population centres including one downtown asset in Chicago, Illinois. 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 $5.5 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 and IFRIC 21 property tax adjustments, 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 adjusted for certain items including leasing costs amortized to revenue, change in fair value of properties, change in fair value of financial instruments, disposition costs, depreciation of hotel asset, deferred income taxes, IFRIC 21 property tax adjustments, 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, IFRCI 21 property tax adjustments, 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 March 31,

 

2018

2017

Rental revenue

$

44,289

 

$

32,318

 

Property operating expenses

(23,533)

 

(17,693)

 

IFRIC 21 property tax adjustments

(528)

 

 

Straight-line rents and other changes

(116)

 

(450)

 

NOI

$

20,112

 

$

14,175

 

 

 

 

The reconciliation of net income to FFO, Core-FFO and AFFO is as follows:

 

 

 

 

Three months ended December 31,

(thousands of dollars, except per unit amounts)

2018

2017

Net income

$

7,904

 

$

8,442

 

Add (deduct):

 

 

Leasing costs amortized to revenue

408

 

222

 

Change in fair value of properties

9,230

 

(227)

 

Change in fair value of financial instruments

(5,048)

 

(862)

 

Disposition costs

54

 

 

Depreciation of hotel asset

222

 

189

 

Deferred income tax recovery

(790)

 

 

IFRIC 21 property tax adjustment(1)

(528)

 

 

Change in fair value of Class B LP units

(2,748)

 

740

 

Distributions to Class B unitholders

991

 

991

 

Subscription receipts equivalent amount (1)

1,597

 

 

FFO (1)

$

11,292

 

$

9,495

 

Finance income on finance lease receivable

(955)

 

(990)

 

Finance lease payments received

1,525

 

1,525

 

Core-FFO (1)

$

11,862

 

$

10,030

 

Amortization of deferred transaction costs

795

 

331

 

Amortization of debt mark-to-market adjustments

(150)

 

(126)

 

Amortization of straight-line rent

(524)

 

(672)

 

Interest rate subsidy

108

 

108

 

Guaranteed income supplements

40

 

634

 

Normalized direct leasing and capital costs

(2,023)

 

(1,463)

 

AFFO (1)

$

10,108

 

$

8,842

 

 

 

 

Weighted average number of diluted units outstanding (000s)

62,874

 

46,101

 

FFO per unit (1)

$

0.18

 

$

0.21

 

Core-FFO per unit (1)

0.19

 

0.22

 

AFFO per unit (1)

0.16

 

0.19

 

FFO payout ratio (1)

110.4

%

91.0

%

Core-FFO payout ratio (1)

105.1

%

86.1

%

AFFO payout ratio (1)

123.4

%

97.7

%

(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 March 31,

 

2018

2017

Cash flow from operating activities

$

7,497

 

$

7,846

 

Add (deduct):

 

 

Leasing costs amortized to revenue

408

 

222

 

Disposition costs

54

 

 

Subscription receipts equivalent amount (1)

1,597

 

 

Working capital items

1,274

 

191

 

Straight-line rent and other changes

116

 

450

 

Interest and other finance costs

(8,728

)

(5,210

)

Interest paid

8,083

 

5,005

 

Distributions paid to Class B unitholders

991

 

991

 

FFO(1)

$

11,292

 

$

9,495

 

Finance income on finance lease receivable

(955

)

(990

)

Finance lease payments received

1,525

 

1,525

 

Core-FFO(1)

$

11,862

 

$

10,030

 

Amortization of deferred transaction costs

795

 

331

 

Amortization of debt mark-to-market adjustments

(150

)

(126

)

Amortization of straight-line rent

(524

)

(672

)

Interest rate subsidy

108

 

108

 

Guaranteed income supplements

40

 

634

 

Normalized direct leasing and capital costs

(2,023

)

(1,463

)

AFFO (1)

$

10,108

 

$

8,842

 

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

The calculation of adjusted EBITDA is as follows:

 

Three months ended March 31,

 

2018

2017

Net income

$

7,904

 

$

8,442

 

Finance income and finance lease receivable

(955

)

(990

)

Net operating income from the Data Centre

1,525

 

1,525

 

Interest income

(37

)

(17

)

Interest and finance costs

10,325

 

5,210

 

Change in fair value of properties

9,230

 

(227

)

IFRIC 21 property tax adjustment

(528

)

 

Change in fair value of financial instruments

(5,048

)

(862

)

Distributions to Class B shareholders

991

 

991

 

Disposition costs

54

 

 

Depreciation of hotel asset

222

 

189

 

Change in fair value of Class B LP units

(2,748

)

740

 

Deferred income tax recovery

(790

)

 

Adjusted EBITDA (1)

$

20,145

 

$

15,001

 

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

The calculation of net debt is as follows:

 

Three months ended March 31,

 

2018

2017

Debt, non-current

$

992,034

 

$

477,098

 

Debt, current

11,917

 

144,798

 

Debt

$

1,003,951

 

$

621,896

 

Less: cash on hand

3,846

 

2,504

 

Net debt

$

1,000,105

 

$

619,392

 

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

 

Three months ended March 31,

 

2018

2017

Net debt

$

1,000,105

 

$

619,392

 

Adjusted EBITDA (2)

80,580

 

60,004

 

Net debt to Adjusted EBITDA (1)

12.4x

10.4x

(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 March 31,

 

2018

2017

Adjusted EBITDA

$

20,145

 

$

15,001

 

Cash interest paid

8,083

 

5,005

 

Interest coverage ratio (1)

2.5x

3.0x

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