SOURCE: Slate Office REIT

Slate Office REIT

November 05, 2015 21:30 ET

Slate Office REIT Reports 47% Growth in FFO per Unit and 78% AFFO Payout Ratio in Third Quarter of 2015

TORONTO, ON--(Marketwired - November 05, 2015) - Slate Office REIT ("Slate Office" or the "REIT") (TSX: SOT.UN) today announced its financial results for the three months and nine months ended September 30, 2015. Senior management will host a conference call at 10:30 a.m. ET on Friday, November 6, 2015 to discuss the results and ongoing business initiatives.

Overall Highlights

Slate Office achieved strong results for the third quarter of 2015 as it executed on its strategy of building a pure-play on Canadian office properties.

          
Per unit amounts  Three months ended September 30, 2015  Three months ended September 30, 2014  % Change
Funds from operations (FFO)  $ 0.24    $ 0.17    41.2 %
Core funds from operations (Core - FFO)  $ 0.28    $ 0.19    47.4 %
Adjusted funds from operations (AFFO)  $ 0.24    $ 0.16    50.0 %
AFFO Payout ratio   78.0 %   118.0 %    
            

During the quarter, the REIT completed nearly 300,000 square feet of lease transactions including a major lease extension with SNC-Lavalin at Sheridan Park in Mississauga, Ontario. Rental rates for all lease renewals completed during the third quarter increased 22.6% above in-place rents.

Scott Antoniak, Chief Executive Officer of Slate Office, wrote in a letter to unitholders:

"This November marks the first anniversary of our stewardship of Slate Office REIT. During this time -- which has passed remarkably quickly -- we've focused primarily on enhancing the REIT's governance, management and strategic plan. There have been numerous milestones marking progress in the transformation into a pure-play office REIT. The third quarter was no exception."

Read the full letter to unitholders here.

Highlights for the Quarter

  • Completed lease transactions for 296,912 square feet, consisting of 41,197 square feet of new leases and 255,715 square feet of lease renewals
  • Major lease extension with SNC-Lavalin in Sheridan Park, Mississauga
  • The distribution payout ratio as a percentage of Adjusted Funds from Operations was 78% for the three months ended September 30, 2015, compared to the payout ratio of 118% for the same period in 2014
  • Core - FFO per unit increased 47.4% compared to three months ended in the prior year
  • Rental rates for new leases increased 8.1% above building in-place rent
  • Rental rates for renewed leases increased 22.6% over expiring rents
  • Purchased for cancellation 170,596 trust units under the REIT's normal course issuer bid ("NCIB") for a total cost of $1.2 million

Subsequent to the Quarter

  • Completed the purchase of the remaining 20% equity interest in the MTS Data Centre; Slate Office now owns 100%.

Conference Call and Webcast

Senior management will host a live conference call at 10:30 a.m. ET on Friday, November 6, 2015 to discuss the results and ongoing business initiatives. The conference call can be accessed by dialing (647) 788-4919 or toll-free (877) 291-4570. Additionally, the conference call will be available via simultaneous audio webcast on the Slate Office's website at www.slateam.com/SOT. A replay will be available on the website or by dialing (416) 621-4642 or toll-free (800) 585-8367, conference ID 72509324, approximately two hours after the event and until November 20, 2015.

Summary of Results

Compared with the three months ended September 30, 2014,

  • Net Operating Income ("NOI") increased $9.5 million
  • Core - Funds from Operations ("Core - FFO") increased by $6.9 million
  • Adjusted Funds from Operations ("AFFO") increased by $6.2 million
       
   Three months ended September 30, 2015  Three months ended September 30, 2014
Revenue from investment properties  $ 29,133    $ 7,991  
Net operating income  $ 14,325    $ 4,843  
Weighted average number of trust units (000s)   35,565     14,973  
Funds from operations (FFO)  $ 8,609    $ 2,587  
Core - funds from operations (Core - FFO)  $ 9,860    $ 2,940  
Adjusted funds from operations (AFFO)  $ 8,547    $ 2,387  
           
FFO per unit  $ 0.24    $ 0.17  
Core - FFO per unit  $ 0.28    $ 0.19  
AFFO per unit  $ 0.24    $ 0.16  
           
Portfolio occupancy   89.2 %   94.8 %
AFFO payout ratio   78.0 %   118.0 %
Debt/GBV ratio   61.5 %   47.2 %
Interest coverage   2.9x     3.0x 
         

Leasing and Operations

During the quarter management completed 41,197 square feet of new leasing and 255,715 square feet of lease renewals.

The latter figure includes a long-term lease extension with SNC-Lavalin for approximately 196,000 square feet in Mississauga's Sheridan Park for an initial term of 10 years, which impacted two buildings currently owned by the REIT (long-term renewal of 99,801 square feet at 2285 Speakman Drive and a short-term renewal of 95,982 square feet at 2599 Speakman Drive) and one building that was purchased by the REIT subsequent to quarter end and therefore not included in these statistics.

Subsequent to quarter end, in connection with the REIT's investments in Sheridan Park, on October 1, 2015, the Trust completed the acquisition an office property from Slate Management Corporation for consideration of $9.2 million, before transaction costs of $0.2 million. The purchase of the property was financed through a combination of $7.8 million in cash borrowed from the REIT's revolving operating facility and the issuance of 211,342 Class B LP units to Slate Management Corporation at a price of $7.06 per unit.

On a quarter-over-quarter basis, the committed occupancy rate, which includes completed lease transactions with commencement dates subsequent to quarter-end, decreased from 90.1% to 90.0%. Net rents on new deals increased by 19.5% over building in-place rents on a weighted-average basis and rental rates on renewals increased by 22.6% over the previous contractual rents on a weighted-average basis.

MTS Data Centre

The MTS Data Centre (the "Data Centre"), is a state-of-the-art facility in Winnipeg, Manitoba. During the third quarter, a mezzanine loan provided to a 50% limited partner to fund their share of the Data Centre development with a due date of July 31, 2015, was converted into a further 30% equity ownership interest for the REIT.

Subsequent to the quarter, the REIT purchased the remaining 20% equity interest for $5.2 million by way of the exercise of the put-call option as contemplated in the limited partnership agreement. As a result of these transactions, the REIT has increased its ownership in the Data Centre to 100%.

Normal Course Issuer Bid

The REIT has certified a NCIB, which commenced on August 17, 2015 and will remain in effect until the earlier of January 12, 2016 or the date on which the REIT purchased an aggregate of 850,154 common shares (representing 10% of the REIT's issued and outstanding units at the time of entering the NCIB through the facilities of the Toronto Stock Exchange).

During the third quarter the REIT repurchased 170,596 trust units for cancellation under the NCIB for a total cost, including transaction costs, of $1.2 million at an average price of $7.10 per unit.

Distributions and Distribution Reinvestment Plan

The REIT pays a monthly distribution of $0.0625 per unit of the REIT, representing $0.75 per unit on an annualized basis.

Eligible unitholders (which includes holders of Class B limited partnership units that are exchangeable into trust units of the REIT) that elect to participate in the Distribution Reinvestment Plan (the "DRIP") will have their cash distributions used to purchase trust units of the REIT and will also receive a "bonus distribution" of units equal in value to 3% of each distribution. Unitholders wishing to participate should contact their investment advisors to enroll in the DRIP. Additional details and information can be found on the REIT's website at slateam.com/SOT.

The REIT may issue up to 1,045,000 trust units of the REIT under the DRIP. The REIT may increase the number of trust units available to be issued under the DRIP at any time at its discretion subject to (a) the approval of the Board of Trustees, (b) the approval of any stock exchange upon which the trust units trade, and (c) public disclosure of such an increase.

Slate Management Corporation, a wholly-owned subsidiary of Slate Asset Management L.P. ("Slate"), is the REIT's manager.

Forward-Looking Statements

Certain information herein constitutes "forward-looking statements" within the meaning of applicable securities legislation. Forward looking statements include statements about management's expectations regarding objectives, plans, goals, strategies, future growth, operating results and performance, business prospects and opportunities of the REIT. Forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "should", "seeks", "intends", "plans", "pro forma", "estimates" or "anticipates"; or variations of such words; and phrases or statements that certain actions, events or results "may", "could" or "might" occur or be achieved; or the negative connotation thereof. Forward-looking statements are made based on reasonable assumptions, however, there is no assurance that the events or circumstances reflected in forward-looking statements will occur or be achieved. Forward-looking statements are based on numerous assumptions of factors that if untrue, could cause actual results to differ materially from those that are implied by such forward-looking statements. These factors include but are not limited to: general and local economic and real estate business conditions; the financial condition of tenants; occupancy rates; rental rates; the ability of the REIT to refinance maturing debt; the REIT's ability to source and complete accretive acquisitions; changes in government, environmental and tax regulations; inflation and interest rate fluctuations; the REIT's ability to obtain equity or debt financing for additional funding requirements; and adequacy of insurance.

Forward-looking statements are subject to risks and uncertainties, many of which are beyond the REIT's control. These risks and uncertainties include, but are not limited to: risks related to general and local financial conditions including available equity and debt financing at reasonable costs and interest rate fluctuations; operational risks including timely leasing of vacant space and re-leasing of occupied space on expiration of current leases on terms at current or anticipated rental rates; tenant defaults and bankruptcies; uncertainties of acquisition activities including availability of suitable property acquisitions and integration of acquisitions; competition including development of properties in close proximity to the REIT's properties; loss of key management and employees; governmental, environmental, taxation and other regulatory risks; litigation risks and other risks and factors described from time to time in the documents filed by the REIT with the securities regulators.

The REIT has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements. However, there may be other factors that could cause results to not be as anticipated, estimated or intended. Forward-looking statements are provided to inform readers about management's current expectations and plans and allow investors and others to better understand the REIT's operating environment. However, readers should not place undue reliance on forward looking statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future performance or results, or of the timing that such performance or results will be achieved. Additional information about risks and uncertainties is contained in Slate Office REIT's annual information form for the year ended December 31, 2014 available on SEDAR at www.sedar.com.

Non-IFRS Financial Measures

The REIT has employed certain non-IFRS financial measures. Management believes that in addition to conventional measures prepared in accordance with IFRS, investors in the real estate industry use these non-IFRS financial measures to evaluate the REIT's performance and ability to generate cash flows. Accordingly, these non-IFRS financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for performance measures prepared in accordance with IFRS. In addition, they do not have standardized meanings and may not be comparable to measures used by other issuers in the real estate industry or other industries.

About Slate Office REIT

Slate Office REIT is an open-ended real estate investment trust. The REIT's portfolio currently comprises 48 strategic and well-located real estate assets located primarily across Canada's major population centres. The REIT is focused on maximizing value through internal organic rental and occupancy growth and strategic acquisitions. Visit slateam.com/SOT to learn more.

About Slate

Slate Asset Management L.P. is a leading real estate investment platform with $3 billion in assets under management. Slate is a value-oriented company and a significant sponsor of all 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.

Contact Information

  • For Further Information:

    Scott Antoniak
    Chief Executive Officer
    Slate Office REIT
    +1 416 583 1764
    scott@slateam.com

    Conor McBroom
    Vice President, Investor Relations
    Slate Asset Management L.P.
    +1 416 619 4284
    conor@slateam.com