Slate Retail REIT Reports Third Quarter 2019 Results

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Slate Retail REIT Reports Third Quarter 2019 Results

Tuesday, October 29, 2019

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

Category:

Dateline:

TORONTO

Public Company Information:

TSX:
SRT.UN
TSX:
SRT.U

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, 2019.

“Solid results this quarter were driven by substantial leasing activity that saw 684,162 square feet renewed, the highest since inception. This was driven by seven grocery-anchor renewals this quarter, another record, and our 94.7% tenant retention rate. Positive growth in rental rates on renewals as well as net new leasing drove a 1.8% increase in trailing twelve month same-property NOI. The new leasing and strong retention ratio also drove an occupancy increase of 110 basis points, to 94.4%. The team’s proactive approach to leasing as well as a continued shortage of new supply continue to support a favorable leasing environment for well capitalized landlords, like Slate Retail," said Greg Stevenson, Chief Executive Officer.

Mr. Stevenson continued, “Total debt was reduced by $74.7 million as we continue to execute on our disposition pipeline at attractive prices, a weighted average 6.4% cap rate so far this year. Looking forward, the path to continued growth remains clear with over $1.5 million of rent from signed leases not yet contributing to net operating income and the $20.5 million redevelopment pipeline with an estimated yield on cost of 10.3%. Lastly, we anticipate making strategic acquisitions that will help offset dilution from dispositions while also improving the overall quality of the portfolio. We continue to believe the long-term predictability of the cash flows generated by grocery-anchored real estate is being widely overlooked."

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

Highlights

  • The REIT approved an increase of its monthly distribution by 1.1% to U.S.$0.072 per unit, or U.S.$0.864 annually, beginning with its December 2019 distribution. This increase is the sixth consecutive annual distribution increase since the REIT listed its class U units on the Toronto Stock Exchange in 2014.
  • Completed 745,112 square feet of leasing in the quarter, comprised of 684,162 square feet of lease renewals at a 5.6% weighted average spread above expiring rent and 60,950 square feet of new leasing at a 15.1% premium to the weighted average in-place rent of comparable space.
  • The weighted average tenant retention rate for the third quarter was 94.7%. Since the beginning of 2016, the weighted average retention rate has been 91.7%.
  • Net income for the quarter was $4.5 million, an increase of $5.5 million from the same quarter in the prior year. This is primarily due to the change in fair value of properties.
  • The REIT continued to execute on its capital recycling program during the quarter. On a year-to-date basis, the REIT has completed 14 dispositions for $81.2 million at a weighted average cap rate of 6.4% on trailing twelve-month net operating income ("NOI"). The REIT will seek to reinvest net proceeds into new accretive investment opportunities that will strengthen the quality of the REIT's portfolio and drive NOI growth.
  • Rental revenue over the quarter was $34.5 million, a decrease of $1.2 million over the same period in the prior year due to the disposition of eight properties and 14 outparcels, partially offset by rental rate growth from re-leasing at rates above in-place rents, new leasing and the acquisition of one property and an interest in one property.
  • NOI was $24.4 million for the three month period ended September 30, 2019, compared to $25.6 million in the same period in the prior year. The decrease is primarily due to the aforementioned lost contribution in rental revenue from the dispositions that occurred over the comparative period.
  • Of the last 12 quarters, the REIT has had 9 quarters of positive same-property NOI growth. Same-property NOI for the trailing twelve month period ended September 30, 2019 (comprised of 69 properties) increased by 1.8% over the same period in the prior year, while same-property NOI for the three month period ended September 30, 2019 (comprised of 72 properties) decreased by 1.0% over the comparative period due to an increase in operating expenses during the quarter and the timing of termination income.
  • Funds from operations ("FFO") was $12.9 million or $0.29 per unit, a decrease of $0.03 per unit from the same period in the prior year, primarily due to the aforementioned lost contribution in rental revenue from the dispositions that occurred over the comparative period.
  • Adjusted funds from operations ("AFFO") was $11.1 million or $0.25 per unit, representing a $0.05 per unit increase compared to the same quarter in 2018, mainly due to a $3.6 million decrease in capital, leasing, and tenant improvement spend.

Three months ended September 30,

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

2019

2018

Change %

Rental revenue

 

$

34,545

 

 

$

35,699

 

 

(3.2

)%

NOI

 

$

24,385

 

 

$

25,551

 

 

(4.6

)%

Net income (loss)

 

$

4,513

 

 

$

(1,024

)

 

540.7

%

 

 

 

 

 

 

 

Leasing – shop space

 

129,255

 

 

127,956

 

 

1.0

%

Leasing – anchor / junior anchor

 

615,857

 

 

130,158

 

 

373.2

%

Total leasing activity (square feet) (1)

 

745,112

 

 

258,114

 

 

188.7

%

 

 

 

 

 

 

 

Weighted average number of units outstanding ("WA units")

 

44,107

 

 

45,489

 

 

(3.0

)%

FFO (2)

 

$

12,936

 

 

$

14,469

 

 

(10.6

)%

FFO per WA units (2)

 

$

0.29

 

 

$

0.32

 

 

(9.4

)%

FFO payout ratio (2)

 

72.7

%

 

66.5

%

 

6.2

%

AFFO (2)

 

$

11,142

 

 

$

8,998

 

 

23.8

%

AFFO per WA units (2)

 

$

0.25

 

 

$

0.20

 

 

25.0

%

AFFO payout ratio (2)

 

84.4

%

 

107.0

%

 

(22.6

)%

 

 

 

 

 

 

 

(in thousands of U.S. dollars)

2019

2018

Change %

Same-property NOI (3 month period, 72 properties)

 

$

22,246

 

 

$

22,478

 

 

(1.0

)%

Same-property NOI (12 month period, 69 properties)

 

$

84,284

 

 

$

82,801

 

 

1.8

%

 

 

 

 

 

 

 

As at September 30,

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

2019

2018

Change %

Total assets

 

$

1,336,836

 

 

$

1,472,898

 

 

(9.2

)%

Total debt

 

$

798,147

 

 

$

875,227

 

 

(8.8

)%

Net asset value per unit

 

$

10.89

 

 

$

12.39

 

 

(12.1

)%

Number of properties (1)

 

79

 

 

86

 

 

(8.1

)%

Portfolio occupancy (1)

 

94.4

%

 

94.3

%

 

0.1

%

Debt / GBV ratio

 

59.7

%

 

59.4

%

 

0.3

%

Interest coverage ratio (2)

 

2.46x

 

2.64x

 

(6.8

)%

(1) Includes the REIT's share of its equity accounted property investment.

(2) 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 30, 2019 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 www.snwebcastcenter.com/webcast/slate/2019/1030 . A replay will be accessible until November 13, 2019 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 2991969) 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. $1.3 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 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

Slate Asset Management is a leading real estate focused alternative investment platform with over $6 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 demonstrated 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”).

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, 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, IFRIC 21, Levies ("IFRIC 21") property tax adjustments and adjustments for equity investment. 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 (loss) adjusted for certain items including transaction costs, change in fair value of properties, change in fair value of financial instruments, deferred income taxes, unit expense (income), adjustments for equity investment 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 NOI less other expenses.
  • Interest coverage ratio is defined as adjusted EBITDA divided by cash interest paid.
  • Net asset value is defined as the aggregate of the carrying value of the REIT's equity, deferred income taxes and exchangeable units of subsidiaries.

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. 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.

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)

 

2019

 

2018

Rental revenue

 

$

34,545

 

 

$

35,699

 

Straight-line rent revenue

 

(323

)

 

(448

)

Property operating expenses

 

(5,287

)

 

(5,126

)

IFRIC 21 property tax adjustment

 

(4,675

)

 

(4,574

)

Adjustments for equity investment

 

125

 

 

 

NOI (1)

 

$

24,385

 

 

$

25,551

 

 

 

 

 

 

Cash flow from operations

 

$

9,420

 

 

$

13,023

 

Changes in non-cash working capital items

 

1,076

 

 

446

 

Disposition costs

 

2,423

 

 

756

 

Finance charge and mark-to-market adjustments

 

(405

)

 

(422

)

Interest, net and TIF note adjustments

 

45

 

 

218

 

Adjustments for equity investment

 

54

 

 

 

Capital

 

(277

)

 

(2,406

)

Leasing costs

 

(357

)

 

(783

)

Tenant improvements

 

(837

)

 

(1,834

)

AFFO (1)

 

$

11,142

 

 

$

8,998

 

 

 

 

 

 

Net income (loss)

 

$

4,513

 

 

$

(1,024

)

Change in fair value of financial instruments

 

3,671

 

 

 

Disposition costs

 

2,423

 

 

756

 

Change in fair value of properties

 

5,441

 

 

18,937

 

Deferred income tax expense

 

1,238

 

 

(325

)

Adjustments for equity investment

 

(72

)

 

 

Unit expense (income)

 

397

 

 

699

 

IFRIC 21 property tax adjustment

 

(4,675

)

 

(4,574

)

FFO (1)

 

$

12,936

 

 

$

14,469

 

Straight-line rental revenue

 

(323

)

 

(448

)

Capital

 

(277

)

 

(2,406

)

Leasing costs

 

(357

)

 

(783

)

Tenant improvements

 

(837

)

 

(1,834

)

AFFO (1)

 

$

11,142

 

 

$

8,998

 

 

 

 

 

 

NOI (1)

 

$

24,385

 

 

$

25,551

 

Other expenses

 

(2,707

)

 

(2,665

)

Cash interest, net

 

(8,776

)

 

(8,443

)

Finance charge and mark-to-market adjustments

 

(405

)

 

(422

)

Adjustments for equity investment

 

(71

)

 

 

Current income tax recovery

 

187

 

 

 

Capital

 

(277

)

 

(2,406

)

Leasing costs

 

(357

)

 

(783

)

Tenant improvements

 

(837

)

 

(1,834

)

AFFO (1)

 

$

11,142

 

 

$

8,998

 

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

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

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

 

2019

 

2018

NOI (1)

 

$

24,385

 

 

$

25,551

 

Other expenses

 

(2,707

)

 

(2,665

)

Adjusted EBITDA (1)

 

$

21,678

 

 

$

22,886

 

Cash interest paid

 

(8,821

)

 

(8,661

)

Interest coverage ratio (1)

 

2.46x

 

2.64x

 

 

 

 

 

WA units

 

44,107

 

 

45,489

 

FFO per WA unit (1)

 

$

0.29

 

 

$

0.32

 

FFO payout ratio (1)

 

72.7

%

 

66.5

%

AFFO per WA unit (1)

 

$

0.25

 

 

$

0.20

 

AFFO payout ratio (1)

 

84.4

%

 

107.0

%

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

 

Contact:

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

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