Home > News > Slate Office REIT Reports Fourth Quarter 2017 Results
Thursday, March 1, 2018

Slate Office REIT Reports Fourth Quarter 2017 Results

TORONTO, ON - Slate Office REIT (TSX: SOT.UN) (the "REIT") announced today its financial results for the three months ended December 31, 2017. Senior management is hosting a conference call at 9:00 a.m. ET on Thursday, March 1, 2018 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

“Heading into 2018, Slate Office REIT will explore new markets in North America, while maintaining the same discipline and investment rationale that we have applied to date," said Scott Antoniak, the REIT’s Chief Executive Officer. “We believe our strategy is transferable across markets and we continue to seek opportunities in markets where we already have a presence.”

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

Highlights

  • The REIT completed a total of 357,663 square feet of leasing, comprised of 288,765 square feet of renewals and 68,898 square feet of new lease deals.

  • Leasing spreads in the quarter were 7.7% above expiring rents. In-place occupancy and weighted average lease term remained relatively constant at 85.8% and 5.8 years compared to 85.9% and 5.9 years as at Q3 2017.

  • Subsequent to quarter end, the REIT completed a new 13,737 square foot 10 year lease with a security firm at rents 20.1% above previous in-place rents and renewed a 51,066 square foot seven year lease with Trader Corp. at Commerce West, at 10.7% above expiring in-place rents.

  • On November 30, 2017, the REIT completed a $13.0 million fixed rate mortgage refinancing on 114 Garry Street, maturing December 1, 2027. Concurrent with the refinancing, the building was removed from the REIT’s revolving credit facility as a secured property.

  • On February 1, 2018, the REIT renewed its revolving operating facility extending the maturity to February 1, 2021. This refinancing addresses the remaining of the REIT's 2018 maturities.

  • On February 5, 2018, the REIT entered into a $100.0 million interest rate swap at a fixed rate of 2.55%, commencing June 29, 2018 for a five year term. This increases the REIT's fixed rate debt by 12.6% to 44.3% at December 31, 2017 on a pro forma basis and reduces the REIT's exposure to increased interest rates.

  • Subsequent to year end, the REIT completed the acquisition of 20 South Clark Street in downtown Chicago, Illinois, marking the REIT’s first acquisition into the United States. The REIT continues to see compelling opportunities to execute its strategy in Chicago and other markets in the United States.

  • Subsequent to year end, the REIT announced its intention to acquire seven office properties located in the Greater Toronto Area and Atlantic Canada for an aggregate purchase price of $191.4 million. This acquisition remains subject to approval by the REIT's unitholders.

  • Net income and comprehensive income was $14.2 million for the quarter and $49.7 million for the year, a decrease of $9.4 million compared to Q3 2017 and an increase of $13.3 million compared to 2016.

  • Rental revenue was $42.4 million for the quarter and $152.1 million for the year, an increase of $1.2 million and $29.9 million compared to Q3 2017 and Q4 2016, respectively.

  • Net operating income ("NOI") was $68.8 million for the year, an increase of $14.8 million compared to Q4 2016.

  • Adjusted funds from operations ("AFFO") was $9.5 million for the quarter and $39.7 million for the year, a decrease of $1.1 million compared to Q3 2017 and an increase of $5.5 million from the same period in 2016.

  • Core-FFO was $11.8 million for the quarter and $46.7 million for the year, a decrease of $1.1 million compared to Q3 2017 and increase of $6.7 million from the same period in 2016.

Summary of Q4 2017 Results 

Three months ended December 31,

    Three months ended December 31,
(thousands of dollars, except per unit amounts)     2017  2016  Change %

Rental revenue

$             42,380

$             35,094

20.8 %

Net operating income ("NOI")

18,489

15,065

22.7 %

Net income and comprehensive income

14,174

14,571

(2.7)%

Same-property NOI

14,633

15,011

(2.5)%

Weighted average diluted number of trust units (000s)

62,266

46,071

35.2 %

Funds from operations ("FFO")

11,221

10,650

5.4 %

FFO per unit

0.18

0.23

(21.7)%

FFO payout ratio

103.9%

81.0%

22.9 %

Core FFO

11,782

11,177

5.4 %

Core FFO per unit

0.19

0.24

(20.8)%

Core FFO payout ratio

99.0%

77.2%

21.8 %

AFFO

9,528

9,737

(2.1)%

AFFO per unit

0.15

0.21

(28.6)%

AFFO payout ratio

122.4%

88.6%

33.8 %

 

 

 

 

 

 

 

December 31,

 

2017

2016

Change %

Total assets

$        1,364,854

$        1,025,522

33.1 %

Total debt

795,591

604,953

31.5 %

Portfolio occupancy (1)

85.8%

86.4%

(0.6)%

Loan to value ratio

58.3%

59.1%

(0.8)%

Net debt to adjusted EBITDA leverage

10.7x

9.3x

1.3x

Interest coverage ratio

2.6x

3.2x

(0.6x)

(1) Including redevelopment properties.

 

 

 

Conference Call and Webcast
Senior management will host a live conference call at 9:00 a.m. ET on Thursday, March 1, 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/2018/0301. A replay will be accessible until March 15, 2018 via the REIT's website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 6238047) 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 North America'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 $4.5 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, 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 value 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 December 31,

 

2017

2016

Rental revenue

$                42,380

$                35,094

Property operating expenses

(23,776)

(19,404)

Straight-line rents and other changes

(115)

(625)

NOI

$                18,489

$                15,065

 

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

Three months ended December 31,

(thousands of dollars, except per unit amounts)

2017

2016

Net income and comprehensive income

$                14,174

$                14,571

Add (deduct):

 

 

Leasing costs amortized to revenue

784

159

Change in fair value of properties

(5,218)

(1,022)

Change in fair value of financial instruments

(253)

(1,564)

Disposition costs

101

Depreciation of hotel asset

215

162

Change in fair value of Class B LP units

528

(2,748)

Distributions to Class B unitholders

991

991

FFO (1)

11,221

10,650

Finance income on finance lease receivable

(964)

(998)

Finance lease payments received

1,525

1,525

Core-FFO (1)

11,782

11,177

Amortization of deferred transaction costs

508

304

Amortization of debt mark-to-market adjustments

(151)

(127)

Amortization of straight-line rent

(899)

(784)

Interest rate subsidy

108

108

Guaranteed income supplements

40

628

Normalized direct leasing and capital costs

(1,860)

(1,569)

AFFO (1)

$                  9,528

$                  9,737

Weighted average number of diluted units outstanding (000s)

62,266

46,071

FFO per unit (1)

$                    0.18

$                    0.23

Core-FFO per unit (1)

0.19

0.24

AFFO per unit (1)

$                    0.15

$                    0.21

FFO payout ratio (1)

103.9%

81.0%

Core-FFO payout ratio (1)

99.0%

77.2%

AFFO payout ratio (1)

122.4%

88.6%

(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 December 31,

 

2017

2016

Cash flow from operating activities

19,642

 

15,322

 

Add (deduct):

 

 

Leasing costs amortized to revenue

784

 

159

 

Disposition costs

 

101

 

Subscription receipts equivalent amount (1)

 

 

Working capital items

(9,954

)

(6,371

)

Straight-line rent and other changes

115

 

625

 

Interest and other finance costs

(7,374

)

(5,143

)

Interest paid

7,017

 

4,966

 

Distributions paid to Class B unitholders

991

 

991

 

FFO(1)

$

11,221

 

$

10,650

 

Finance income on finance lease receivable

(964

)

(998

)

Finance lease payments received

1,525

 

1,525

 

Core-FFO(1)

$

11,782

 

$

11,177

 

Amortization of deferred transaction costs

508

 

304

 

Amortization of debt mark-to-market adjustments

(151

)

(127

)

Amortization of straight-line rent

(899

)

(784

)

Interest rate subsidy

108

 

108

 

Guaranteed income supplements

40

 

628

 

Normalized direct leasing and capital costs

(1,860

)

(1,569

)

AFFO (1)

$

9,528

 

$

9,737

 

 

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

The calculation of adjusted EBITDA is as follows:

 

Three months ended December 31,

 

2017

2016

Net income and comprehensive income

14,174

 

14,571

 

Finance income and finance lease receivable

(964

)

(998

)

Net operating income from the Data Centre

1,525

 

1,524

 

Interest income

(32

)

(21

)

Interest and finance costs

7,374

 

5,143

 

Change in fair value of properties

(5,218

)

(1,022

)

Change in fair value of financial instruments

(253

)

(1,564

)

Disposition costs

 

101

 

Depreciation of hotel asset

215

 

162

 

Change in fair value of Class B LP units

528

 

(2,748

)

Distributions to Class B LP unitholders

991

 

991

 

Adjusted EBITDA (1)

18,340

 

16,139

 

         
 

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

The calculation of net debt is as follows:

 

Three months ended December 31,

 

2017

2016

Debt, non-current

612,738

 

462,644

 

Debt, current

182,853

 

142,309

 

Debt

795,591

 

604,953

 

Less: cash on hand

9,153

 

4,252

 

Net debt

786,438

 

600,701

 

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

 

Three months ended December 31,

 

2017

2016

Net debt

786,438

 

600,701

 

Adjusted EBITDA (2)

73,360

 

64,556

 

Net debt to Adjusted EBITDA (1)

10.7x

9.3x

(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 December 31,

 

2017

2016

Adjusted EBITDA

18,340

 

16,139

 

Cash interest paid

7,017

 

4,966

 

Interest coverage ratio (1)

2.6x

3.2x

 

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