Home > News > Slate Retail REIT Reports First Quarter 2018 Results
Tuesday, May 1, 2018

Slate Retail REIT Reports First Quarter 2018 Results

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

TORONTO, ON - 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 months ended March 31, 2018. Senior management will host a conference call at 9:00 a.m. ET on Wednesday, May 2, 2018 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

“We have continued to make significant progress on leasing and the execution of our asset management plans that we believe will result in healthy net operating income growth for the REIT,” commented Greg Stevenson, Chief Executive Officer of the REIT. "Due to the timing of leasing and some of the REIT’s initiatives, we expect this growth to be weighted toward the second half of the year."

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

First Quarter 2018 Highlights

  • Completed 294,408 square feet of leasing in the quarter, comprised of 227,627 square feet of lease renewals at a 4.2% weighted average spread above expiring rent and 66,781 square feet of new leasing which is $2.64 or 22.2% above the weighted average in-place rent for comparable space.

  • The REIT repurchased for cancellation 0.3 million class U units under the REIT's normal course issuer bid for a total cost of $2.5 million at an average price of $9.49 per unit, resulting in $0.2 million of annual distribution savings. Subsequent to quarter end, including under the REIT’s automatic securities repurchase plan, 0.2 million additional class U units were repurchased for cancellation for a total cost of $2.0 million at an average price of $9.68 per unit.

  • During 2018, Slate Asset Management L.P. has purchased an additional 0.2 million class U units of the REIT, increasing its current ownership in the REIT to 7.3% from 6.7% at December 31, 2017. Insiders now collectively own over 14% of the REIT.

  • The REIT's net asset value per unit, calculated using IFRS amounts, decreased by 5.0% to $12.55 during the quarter. This decline is primarily related to fair value adjustments at a limited number of properties in response to market conditions. Overall, the REIT believes that the operating fundamentals of the REIT continue to improve.

  • Occupancy remained stable at 93.7%, with a significant portion of the REIT's leasing activity expected to impact future periods.

  • Rental revenue was $36.5 million, which is an increase of $9.3 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 rents and new leasing in addition to net acquisitions. In the last 12 months, the REIT has acquired 15 properties and 1 property outparcel and disposed of 7 outparcels at certain properties.

  • Funds from operations ("FFO") per unit increased by $0.01 to $0.33 per unit or $15.2 million when compared to the same period in the prior year.

  • Adjusted funds from operations ("AFFO") was $11.0 million or $0.24 per unit, lower by $0.05 per unit compared to the same period in the prior year. AFFO was impacted by a $2.2 million increase in capital and leasing expenditures made to primarily support new leasing in addition to increased interest of $3.1 million.

  • The REIT's AFFO payout ratio for the first quarter of 2018 was 88.7%. On a trailing twelve month basis the AFFO payout ratio was 85.4%.

  • The REIT increased net income by $18.1 million to $26.7 million compared to the same quarter in the prior year primarily due to the aforementioned increases in rental revenue and an increase in the fair value of REIT units and exchangeable units of subsidiaries of $34.6 million, partially offset by a decrease in the change in fair value of properties of $6.6 million and increased distributions of $1.4 million.

Summary of the First Quarter 2018 Results

Three months ended March 31,

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

               2018

              2017

Change %

Rental revenue

 

$

36,544

 

 

$

27,233

 

 

34.2

%

NOI

 

$

24,724

 

 

$

19,411

 

 

27.4

%

Net income

 

$

26,703

 

 

$

8,652

 

 

208.6

%

 

 

 

 

 

 

 

Leasing - shop space

 

184,509

 

 

100,926

 

 

82.8

%

Leasing - anchor / junior anchor

 

109,899

 

 

175,384

 

 

(37.3

)%

Total leasing activity (square feet)

 

294,408

 

 

276,310

 

 

6.5

%

 

 

 

 

 

 

 

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

 

46,479

 

 

39,847

 

 

16.6

%

FFO (1)

 

$

15,227

 

 

$

12,859

 

 

18.4

%

FFO per WA units (1)

 

$

0.33

 

 

$

0.32

 

 

3.1

%

FFO payout ratio (1)

 

64.0

%

 

64.6

%

 

(0.9

)%

AFFO (1)

 

$

10,987

 

 

$

11,587

 

 

(5.2

)%

AFFO per WA units (1)

 

$

0.24

 

 

$

0.29

 

 

(17.2

)%

AFFO payout ratio (1)

 

88.7

%

 

71.7

%

 

23.7

%

 

 

 

 

 

 

 

(in thousands of U.S. dollars)

                    2018

                     2017

Change %

Same-property NOI (3 month period)

 

$

16,555

 

 

$

16,761

 

 

(1.2

)%

Same-property NOI (12 month period)

 

58,511

 

 

58,688

 

 

(0.3

)%

 

 

 

 

 

 

 

As at March 31,

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

                   2018

                   2017

Change %

Total assets

 

$

1,478,396

 

 

$

1,158,102

 

 

27.7

%

Total debt

 

$

872,263

 

 

$

597,787

 

 

45.9

%

Net asset value per unit

 

$

12.55

 

 

$

13.21

 

 

(5.0

)%

Portfolio occupancy

 

93.7

%

 

93.2

%

 

0.5

%

Debt / GBV ratio

 

59.0

%

 

51.6

%

 

14.3

%

Interest coverage ratio (1)

 

2.67x

 

3.72x

 

(19.3

)%

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

Amendment to the Declaration of Trust and Subdivision of Class A and I Units of the REIT

On May 1, 2018, unitholders approved a special resolution authorizing and approving an amendment and restatement of the declaration of trust of the REIT (the “Third A&R DOT”) for the purpose of making the features of the class A units, class I units and class U units consistent among all three classes, among other things. Also on May 1, 2018, the board of trustees of the REIT approved the subdivision of each of the: (i) class A units issued and outstanding on May 3, 2018 (the “Record Date”) on the basis of a subdivision ratio of one pre-subdivision class A unit for 1.0078 post-subdivision class A units; and (ii) class I units issued and outstanding on the Record Date on the basis of a subdivision ratio of one pre-subdivision class I unit for 1.0554 class I units (the "Subdivision"). The Third A&R DOT and the Subdivision will be undertaken contemporaneously and the impact of such actions will not change the relative economics of the different classes of units of the REIT. As a consequence of the Subdivision, the proportionate entitlement of the class A units and class I units with respect to distributions from the REIT will be adjusted to 1.0 and all class A units, class I units and class U units will have equal rights with respect to distributions from the REIT, redemptions of units and on the termination of the REIT. Upon completion of the Subdivision, each class A unit and each class I unit will remain convertible into a class U unit but the conversion ratio will be on a one-for-one-basis. Management of the REIT anticipates that the Subdivision and the Third A&R DOT will result in the class A units, class I units and class U units being treated as equity of the REIT under IFRS as opposed to their current presentation as a liability, which management of the REIT believes is appropriate. The Subdivision is expected to be completed at 8:00 a.m. (Toronto time) on May 11, 2018.

Conference Call and Webcast

Senior management will host a live conference call at 9:00 a.m. ET on Wednesday, May 2, 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/2018/0502. A replay will be accessible until May 16, 2018 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 4573507) 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 $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 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.

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

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 March 31,

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

 

       2018

 

       2017

Rental revenue

 

$

36,544

 

 

$

27,233

 

Straight-line rent revenue

 

(1,135

)

 

(401

)

Property operating expenses

 

(24,519

)

 

(16,907

)

IFRIC 21 property tax adjustment

 

13,834

 

 

9,486

 

NOI (1)

 

$

24,724

 

 

$

19,411

 

 

 

 

 

 

Cash flow from operations

 

$

15,792

 

 

$

13,728

 

Changes in non-cash working capital items

 

(2,266

)

 

(1,602

)

Disposition and acquisition costs

 

722

 

 

354

 

Finance charge and mark-to-market adjustments

 

(371

)

 

(208

)

Interest, net and TIF note adjustments

 

215

 

 

186

 

Capital

 

(734

)

 

(526

)

Leasing costs

 

(618

)

 

(101

)

Tenant improvements

 

(1,753

)

 

(244

)

AFFO (1)

 

$

10,987

 

 

$

11,587

 

 

 

 

 

 

Net income

 

$

26,703

 

 

$

8,652

 

Disposition and acquisition costs

 

722

 

 

354

 

Change in fair value of properties

 

6,557

 

 

(14,638

)

Deferred income tax (recovery) expense

 

(1,879

)

 

6,552

 

Unit (income) expense

 

(30,710

)

 

2,453

 

IFRIC 21 property tax adjustment

 

13,834

 

 

9,486

 

FFO (1)

 

$

15,227

 

 

$

12,859

 

Straight-line rental revenue

 

(1,135

)

 

(401

)

Capital

 

(734

)

 

(526

)

Leasing costs

 

(618

)

 

(101

)

Tenant improvements

 

(1,753

)

 

(244

)

AFFO (1)

 

$

10,987

 

 

$

11,587

 

 

 

 

 

 

NOI (1)

 

$

24,724

 

 

$

19,411

 

Other expenses

 

(2,476

)

 

(2,019

)

Cash interest, net

 

(7,785

)

 

(4,726

)

Finance charge and mark-to-market adjustments

 

(371

)

 

(208

)

Capital

 

(734

)

 

(526

)

Leasing costs

 

(618

)

 

(101

)

Tenant improvements

 

(1,753

)

 

(244

)

AFFO (1)

 

$

10,987

 

 

$

11,587

 

Three months ended March 31,

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

 

       2018

 

        2017

NOI (1)

 

$

24,724

 

 

$

19,411

 

Other expenses

 

(2,476

)

 

(2,019

)

Adjusted EBITDA (1)

 

$

22,248

 

 

$

17,392

 

Cash interest paid

 

(8,342

)

 

(4,678

)

Interest coverage ratio (1)

 

2.67x

 

3.72x

 

 

 

 

 

WA units

 

46,479

 

 

39,847

 

FFO per WA unit (1)

 

$

0.33

 

 

$

0.32

 

FFO payout ratio (1)

 

64.0

%

 

64.6

%

AFFO per WA unit (1)

 

$

0.24

 

 

$

0.29

 

AFFO payout ratio (1)

 

88.7

%

 

71.7

%

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