Home > News > Slate Office REIT Reports Second Quarter 2018 Results
Monday, August 6, 2018

Slate Office REIT Reports Second Quarter 2018 Results

TORONTO, ON - Slate Office REIT (TSX: SOT.UN) (the "REIT") announced today its financial results for the three months ended June 30, 2018. Senior management is hosting a conference call at 8:00 a.m. ET on Tuesday, August 7, 2018 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

"Slate Office REIT achieved solid results in the second quarter, highlighted by active leasing and positive same-property NOI growth,” said Scott Antoniak, the REIT’s Chief Executive Officer. “Our exceptional team continues to execute on our strategy of buying well and providing best-in-class asset management to create value for our unitholders."

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

Second Quarter 2018 Highlights

  • The REIT completed a total of 441,222 square feet of leasing, comprised of 345,055 square feet of renewals and 96,167 square feet of new lease deals.

  • Leasing spreads in the quarter were 9.2% above expiring or building in-place rents and in-place occupancy increased to 86.8% compared to 85.9% as at Q1 2018.

  • Occupancy at June 30, 2018 was 86.8%, up 90 basis points from the first quarter of 2018 and 240 basis points from the second quarter of 2017.

  • Same-property net operating income (“NOI”) was up 11.7% in the second quarter of 2018 compared to the same period in the prior year.

  • Same-property NOI was up 6.8% in the second quarter of 2018 compared to the first quarter of 2018.

  • The Maritime Centre in Halifax continues to see strong leasing demands. During the quarter, the REIT completed a new lease for 52,400 square feet, with rent commencing in Q2 2019.

  • Net income was $23.6 million, a increase of $20.1 million compared to Q2 2017.

  • Rental revenue was $52.1 million, an increase of $15.9 million compared to Q2 2017.

  • Adjusted funds from operations ("AFFO") was $12.8 million or $0.17 per unit, an increase of $2.7 million and $0.01 per unit compared to Q1 2018.

  • Core funds from operations ("Core FFO") was $15.4 million or $0.20 per unit, an increase of $3.5 million and $0.01 per unit compared to Q1 2018.

Recycling Capital

  • On August 1, 2018, the REIT agreed to acquire 120 South LaSalle Street in Chicago, IL for U.S.$155.5 million (U.S.$237 per square foot).  The property is a 23-storey, 84% occupied downtown office building with an adjacent parking garage, located in the Central Loop of Chicago, with a weighted average lease term of 10.4 years.  CIBC (AA credit) is the anchor tenant and occupies 45% of the building's gross leaseable area. The REIT expects the transaction to close in the third quarter of 2018.

  • Subsequent to June 30, 2018, the REIT agreed to dispose of its Water Street properties in St. John's Newfoundland for gross proceeds of $17.5 million.  The disposition price was approximately 40% greater than the REIT's March 31, 2018 IFRS book value.

  • The REIT completed the disposition of 135 Queen’s Plate in Toronto, Ontario for $16.7 million, which was approximately 10% higher than the REIT's IFRS book value.

  • The REIT continues to pursue opportunities to dispose of fully valued, non-core assets and redeploy proceeds into higher yielding office buildings across North America as part of its capital recycling initiative.

Summary of Q2 2018 Results

 

Three months ended June 30,

(thousands of dollars, except per unit amounts)

               2018

                2017

Change %

Rental revenue

$

52,056

 

$

36,230

 

43.7

%

Net operating income ("NOI")

25,212

 

17,131

 

47.2

%

Net income

23,592

 

3,482

 

577.5

%

 

 

 

 

Same-property NOI

16,561

 

14,832

 

11.7

%

 

 

 

 

Weighted average diluted number of trust units (000s)

75,139

 

57,781

 

30.0

%

Funds from operations ("FFO")

14,810

 

11,405

 

29.9

%

FFO per unit

0.20

 

0.20

 

%

FFO payout ratio

95.1

%

102.2

%

(7.1

)%

Core FFO

15,389

 

11,949

 

28.8

%

Core FFO per unit

0.20

 

0.21

 

(4.8

)%

Core FFO payout ratio

91.5

%

97.5

%

(6.0

)%

AFFO

12,836

 

10,694

 

20.0

%

AFFO per unit

0.17

 

0.19

 

(10.5

)%

AFFO payout ratio

109.7

%

108.9

%

0.8

%

 

 

 

 

 

 

 

June 30,

 

                2018

                 2017

Change %

Total assets

$

1,689,148

 

$

1,302,622

 

29.7

%

Total debt

1,016,926

 

752,312

 

35.2

%

Portfolio occupancy (1)

86.8

%

84.4

%

2.4

%

Loan to value ratio

60.2

%

57.8

%

2.4

%

Net debt to adjusted EBITDA leverage

10.3x

10.6x

(0.4x)

Interest coverage ratio

2.5x

3.1x

(0.6x)

(1) Including redevelopment properties.

Conference Call and Webcast
Senior management will host a live conference call at 8:00 a.m. ET on Tuesday, August 7, 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/2018/0807. A replay will be accessible until August 21, 2018 via the REIT's website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 5596777) 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 44 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 June 30,

 

                   2018

                    2017

Rental revenue

$

52,056

 

$

36,230

 

Property operating expenses

(26,377

)

(18,833

)

IFRIC 21 property tax adjustments

(585

)

 

Straight-line rents and other changes

118

 

(266

)

NOI

$

25,212

 

$

17,131

 

 

 

 

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

 

 

 

 

Three months ended June 30,

(thousands of dollars, except per unit amounts)

                    2018

                     2017

Net income

$

23,592

 

$

3,482

 

Add (deduct):

 

 

Leasing costs amortized to revenue

930

 

239

 

Change in fair value of properties

(10,535

)

2,389

 

Change in fair value of financial instruments

(116

)

3,266

 

Disposition costs

 

133

 

Depreciation of hotel asset

228

 

191

 

Deferred income tax recovery

305

 

 

IFRIC 21 property tax adjustment(1)

(585

)

 

Change in fair value of Class B LP units

 

(212

)

Distributions to Class B unitholders

991

 

991

 

Subscription receipts equivalent amount(1)

 

926

 

FFO (1)

$

14,810

 

$

11,405

 

Finance income on finance lease receivable

(946

)

(981

)

Finance lease payments received

1,525

 

1,525

 

Core-FFO (1)

$

15,389

 

$

11,949

 

Amortization of deferred transaction costs

515

 

382

 

Amortization of debt mark-to-market adjustments

(96

)

(134

)

Amortization of straight-line rent

(812

)

(505

)

Interest rate subsidy

108

 

108

 

Guaranteed income supplements

300

 

634

 

Normalized direct leasing and capital costs

(2,568

)

(1,740

)

AFFO (1)

$

12,836

 

$

10,694

 

 

 

 

Weighted average number of diluted units outstanding (000s)

75,139

 

57,781

 

FFO per unit (1)

$

0.20

 

$

0.20

 

Core-FFO per unit (1)

0.20

 

0.21

 

AFFO per unit (1)

0.17

 

0.19

 

FFO payout ratio (1)

95.1

%

102.2

%

Core-FFO payout ratio (1)

91.5

%

97.5

%

AFFO payout ratio (1)

109.7

%

108.9

%

(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 June 30,

 

                       2018

                          2017

Cash flow from operating activities

$

12,120

 

$

8,161

 

Add (deduct):

 

 

Leasing costs amortized to revenue

930

 

239

 

Disposition costs

 

133

 

Subscription receipts equivalent amount (1)

 

926

 

Working capital items

1,306

 

937

 

Straight-line rent and other changes

(118

)

266

 

Interest and other finance costs

(10,094

)

(5,957

)

Interest paid

9,675

 

5,709

 

Distributions paid to Class B unitholders

991

 

991

 

FFO(1)

$

14,810

 

$

11,405

 

Finance income on finance lease receivable

(946

)

(981

)

Finance lease payments received

1,525

 

1,525

 

Core-FFO(1)

$

15,389

 

$

11,949

 

Amortization of deferred transaction costs

515

 

382

 

Amortization of debt mark-to-market adjustments

(96

)

(134

)

Amortization of straight-line rent

(812

)

(505

)

Interest rate subsidy

108

 

108

 

Guaranteed income supplements

300

 

634

 

Normalized direct leasing and capital costs

(2,568

)

(1,740

)

AFFO (1)

$

12,836

 

$

10,694

 

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

 

The calculation of adjusted EBITDA is as follows:

 

Three months ended June 30,

 

                       2018

                        2017

Net income

$

23,592

 

$

3,482

 

Finance income and finance lease receivable

(946

)

(981

)

Net operating income from the Data Centre

1,525

 

1,525

 

Interest income

(40

)

(24

)

Interest and finance costs

10,094

 

6,883

 

Change in fair value of properties

(10,535

)

2,389

 

IFRIC 21 property tax adjustment

(585

)

 

Change in fair value of financial instruments

(116

)

3,266

 

Distributions to Class B shareholders

991

 

991

 

Disposition costs

 

133

 

Depreciation of hotel asset

228

 

191

 

Change in fair value of Class B LP units

 

(212

)

Deferred income tax recovery

305

 

 

Adjusted EBITDA (1)

$

24,513

 

$

17,643

 

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

The calculation of net debt is as follows:

 

Three months ended June 30,

 

                        2018

                         2017

Debt, non-current

$

879,069

 

$

469,036

 

Debt, current

137,857

 

283,276

 

Debt

$

1,016,926

 

$

752,312

 

Less: cash on hand

5,709

 

2,282

 

Net debt

$

1,011,217

 

$

750,030

 

 

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

 

Three months ended June 30,

 

                        2018

                         2017

Net debt

$

1,011,217

 

$

750,030

 

Adjusted EBITDA (2)

98,052

 

70,572

 

Net debt to Adjusted EBITDA (1)

10.3x

10.6x

(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 June 30,

 

                       2018

                        2017

Adjusted EBITDA

$

24,513

 

$

17,643

 

Cash interest paid

9,675

 

5,709

 

Interest coverage ratio (1)

2.5x

3.1x

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