Slate Retail REIT Reports Third Quarter 2018 Results

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Slate Retail REIT Reports Third Quarter 2018 Results

Tuesday, October 30, 2018

(All amounts are expressed in U.S. dollars unless otherwise stated)

Category:

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TORONTO

Public Company Information:

TSX:
SRT.U
TSX:
SRT.UN

TORONTO--(BUSINESS WIRE)--Slate Retail REIT (TSX: SRT.U) (TSX: SRT.UN) (the "REIT"), an owner of U.S. grocery-anchored real estate, today announced its financial results for the three and nine months ended September 30, 2018. Senior management will host a conference call at 9:00 a.m. ET on Wednesday, October 31, 2018 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

“Our confidence in the future demand for our quality locations continues to grow,” commented Greg Stevenson, Chief Executive Officer of the REIT. “Our largest tenants continue to invest heavily in their businesses. The operating performance of this past quarter continues to support this assessment, highlighted by strong leasing spreads and positive same-property NOI growth. We remain confident that our leasing and asset management initiatives will continue to drive growth within the portfolio and create value for unitholders.”

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

Third Quarter 2018 Highlights

  • The REIT approved an increase of its monthly distribution by 1.8% to U.S.$0.07125 per unit, or U.S.$0.855 annually, beginning with its December 2018 distribution. This increase is the fifth consecutive annual distribution increase since the REIT listed its Class U units on the Toronto Stock Exchange in 2014.
  • Occupancy increased by 0.4% during the quarter to 94.3%. Compared to the prior year, occupancy increased by 1.7% from 92.6%.
  • Completed 258,114 square feet of leasing in the quarter, comprised of 177,451 square feet of lease renewals at a 7.6% weighted average spread above expiring rent and 80,663 square feet of new leasing, which is a 36.8% premium above the weighted average in-place rent for comparable space.
  • The REIT continued to actively repurchase units, with 0.4 million class U units purchased and subsequently canceled under the REIT's normal course issuer bid during the third quarter for a total cost of $3.5 million at an average price of $9.92 per unit. During 2018, the REIT has repurchased 0.9 million units which will result in approximately in $0.7 million of annual distribution savings. Subsequent to quarter end, included under the REIT’s automatic securities repurchase plan, 0.6 million additional class U units were repurchased at an average price of $9.80 per unit.
  • On July 30, 2018, the REIT entered into $350.0 million notional amount pay-fixed receive-float interest rate swaps. At September 30, 2018, 98.8% of the REIT's debt is subject to fixed rates.
  • Rental revenue was $35.7 million, which is an increase of $5.7 million over the same period in the prior year. The increase is primarily due to rental rate growth from re-leasing at rates above in-place rent and new leasing in addition to net acquisitions. In the last 12 months, the REIT has acquired three properties and disposed of one property and seven outparcels at certain properties.
  • Same-property NOI increased by 2.4% for the three month period ended September 30, 2018 (comprised of 65 properties) from the same period in the prior year. Including the impact of the completion of the North Augusta Plaza anchor redevelopment, same-property NOI increased by 2.7%.
  • Funds from operations ("FFO") per unit of $0.32 represented a $0.01 increase from the same period in the prior year, due to the aforementioned increase in rental revenue, partially offset by a $2.8 million increase in cash interest paid over the prior quarter.
  • Adjusted funds from operations ("AFFO") was $9.0 million or $0.20 per unit, lower by $0.04 per unit compared to the same period in the prior year. AFFO was impacted by a $2.1 million increase in capital, leasing, and tenant improvement spend to primarily support new leasing. If the REIT calculated capital, leasing and tenant improvement spend as 10% of NOI in the current quarter, which is representative of the REIT's historical sustaining capital, leasing and tenant improvement costs, the REIT would have a modified AFFO per unit of $0.25.
  • Net loss for the quarter was $1.0 million, an increase of $7.8 million from the same quarter in the prior year. The increase is primarily a result of the aforementioned increases in revenue and decreases in unit expense due to the classification of REIT units as equity effective May 11, 2018. Total REIT distributions for the quarter recognized as a decrease to equity, was $9.2 million.

 

Three months ended September 30,

(in thousands of U.S. dollars, except per unit amounts)   2018     2017    

Change %

Rental revenue     $ 35,699       $ 30,030       18.9 %
NOI $ 25,551 $ 21,891 16.7 %
Net loss $ (1,024 ) $ (8,816 ) (88.4 )%
 
Leasing - shop space 127,956 124,175 3.0 %
Leasing - anchor / junior anchor 130,158 366,247 (64.5 )%
Total leasing activity (square feet) 258,114 490,422 (47.4 )%
 
Weighted average number of units outstanding ("WA units") 45,489 46,372 (1.9 )%

FFO (1)

$ 14,469 $ 14,448 0.1 %

FFO per WA units (1)

$ 0.32 $ 0.31 3.2 %

FFO payout ratio (1)

66.5 % 64.9 % 1.6 %

AFFO (1)

$ 8,998 $ 11,168 (19.4 )%

AFFO per WA units (1)

$ 0.20 $ 0.24 (16.7 )%

AFFO payout ratio (1)

        107.0 %         84.0 %       23.0 %  
 
(in thousands of U.S. dollars)   2018     2017    

Change %

Same-property NOI (3 month period, 65 properties) $ 18,226 $ 17,801 2.4 %
Same-property NOI (12 month period, 56 properties)       $ 61,308         $ 61,427         (0.2 )%
 

 

As at September 30,

(in thousands of U.S. dollars, except per unit amounts)   2018     2017    

Change %

Total assets $ 1,472,898 $ 1,476,651 (0.3 )%
Total debt $ 875,227 $ 846,325 3.4 %
Net asset value per unit $ 12.39 $ 13.08 (5.3 )%
Portfolio occupancy 94.3 % 92.6 % 1.7 %
Debt / GBV ratio 59.4 % 57.3 % 2.1 %

Interest coverage ratio (1)

      2.64x       3.41x       (22.6 )%

(1) Refer to “Non-IFRS Measures” section below.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 a.m. ET on Wednesday, October 31, 2018 to discuss the results and ongoing business initiatives.

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  www.snwebcastcenter.com/webcast/slate/2018/1031 . A replay will be accessible until November 14, 2018 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 3590399) approximately two hours after the live event.

About Slate Retail REIT (TSX: SRT.U / SRT.UN)

Slate Retail REIT is a real estate investment trust focused on U.S. grocery-anchored real estate. The REIT owns and operates approximately U.S. $1.5 billion of assets located across the top 50 U.S. metro markets that are visited regularly by consumers for their everyday needs. The REIT’s conservative payout ratio, together with its diversified portfolio and quality tenant covenants, provides a strong basis to continue to grow unitholder distributions and the flexibility to capitalize on opportunities that drive value appreciation. Visit  slateretailreit.com  to learn more about the REIT.

About Slate Asset Management L.P.

Slate Asset Management L.P. is a leading real estate investment platform with over $6.0 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 Retail’s Supplemental Information online at slateretailreit.com in the Investors section. These materials are also available on SEDAR or upon request to the REIT at info@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

This news release and accompanying financial statements are based on International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

The REIT discloses 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, AFFO, AFFO payout ratio, 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 expenses, prior to straight-line rent and IFRIC 21, Levies ("IFRIC 21") adjustments. Same-property NOI includes those properties owned by the REIT for each of the current period and the relevant comparative period excluding those properties under development.
  • FFO is defined as net income adjusted for certain items including transaction costs, change in fair value of properties, deferred income taxes, unit expense and IFRIC 21 property tax adjustments.
  • AFFO is defined as FFO adjusted for straight-line rental revenue and sustaining capital, leasing costs and tenant improvements.
  • FFO payout ratio and AFFO payout ratio are defined as distributions declared divided by FFO and AFFO, respectively.
  • FFO per WA unit and AFFO per WA unit are defined as FFO and AFFO divided by the weighted average class U equivalent units outstanding, respectively.
  • Adjusted EBITDA is defined as earnings before interest, income taxes, distributions, fair value gains (losses) from both financial instruments and properties, while also excluding certain items not related to operations such as transaction costs from dispositions, acquisitions, debt termination costs, or other events.
  • Interest coverage ratio is defined as adjusted EBITDA divided by cash interest paid.

The REIT utilizes 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. Management believes 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. Management cautions 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.

Calculation and Reconciliation of Non-IFRS Measures

The table below summarizes a calculation of non-IFRS measures based on IFRS financial information.

           

 

Three months ended September 30,

(in thousands of U.S. dollars, except per unit amounts)      

2018

       

2017

 
Rental revenue     $ 35,699       $ 30,030
Straight-line rent revenue (448 ) (367 )
Property operating expenses (5,126 ) (3,988 )
IFRIC 21 property tax adjustment         (4,574 )         (3,784 )
NOI (1)       $ 25,551         $ 21,891  
 
Cash flow from operations $ 13,023 $ 9,888
Changes in non-cash working capital items 446 4,072
Acquisition and disposition costs 756 187
Finance charge and mark-to-market adjustments (422 ) (281 )
Interest, net and TIF note adjustments 218 215
Capital (2,406 ) (1,431 )
Leasing costs (783 ) (596 )
Tenant improvements         (1,834 )         (886 )
AFFO (1)       $ 8,998         $ 11,168  
 
Net loss $ (1,024 ) $ (8,816 )
Acquisition and disposition costs 756 187
Change in fair value of properties 18,937 1,142
Deferred income tax (recovery) expense (325 ) 5,827
Unit expense (income) 699 19,892
IFRIC 21 property tax adjustment         (4,574 )         (3,784 )
FFO (1) $ 14,469 $ 14,448
Straight-line rental revenue (448 ) (367 )
Capital (2,406 ) (1,431 )
Leasing costs (783 ) (596 )
Tenant improvements         (1,834 )         (886 )
AFFO (1)       $ 8,998         $ 11,168  
 
NOI (1) $ 25,551 $ 21,891
Other expenses (2,665 ) (1,880 )
Cash interest, net (8,443 ) (5,649 )
Finance charge and mark-to-market adjustments (422 ) (281 )
Capital (2,406 ) (1,431 )
Leasing costs (783 ) (596 )
Tenant improvements         (1,834 )         (886 )  
AFFO (1)       $ 8,998         $ 11,168    

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

 
                         

 

Three months ended September 30,

(in thousands of U.S. dollars, except per unit amounts)      

2018

       

2017

   
NOI (1) $ 25,551 $ 21,891
Other expenses         (2,665 )         (1,880 )
Adjusted EBITDA (1) $ 22,886 $ 20,011
Cash interest paid         (8,661 )         (5,864 )
Interest coverage ratio (1)      

 

2.64x

       

 

3.41x

 
 
WA units 45,489 46,372
FFO per WA unit (1) $ 0.32 $ 0.31
FFO payout ratio (1) 66.5 % 64.9 %
AFFO per WA unit (1) $ 0.20 $ 0.24
AFFO payout ratio (1)         107.0 %         84.0 %

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

 

Contact:

Slate Retail REIT
Investor Relations
+1 416 644 4264
ir@slateam.com

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