Slate Office REIT Announces First Quarter 2019 Results and Unit Repurchase Plan

TORONTO–(BUSINESS WIRE)–Slate Office REIT (TSX: SOT.UN) (the “REIT”) reported today financial
results for the three months ended March 31, 2019. Senior management is
hosting a conference call at 9:00 a.m. ET on Monday, May 6, 2019 to
discuss the results and ongoing business initiatives of the REIT. The
dial-in details can be found below.

“The REIT has undergone a transformative quarter highlighted by the
strategic joint venture with a global private equity partner which
resulted in a 19% IRR for our unitholders and reinforces the net asset
value of the REIT,” said Scott Antoniak, Chief Executive Officer of
Slate Office REIT. “As a result of this partnership, we have
repositioned the balance sheet to provide the REIT with liquidity to
maximize unitholder value going forward. Part of this liquidity will be
used to repurchase up to 10% of the REIT’s units which continue to trade
at a material discount to net asset value.”

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

First Quarter 2019 Highlights

• Improved same property NOI: Same property net operating income
  (“NOI”) was $19.3 million for the first quarter of 2019, an increase
  of $0.9 million or 4.9% compared to the same period in 2018.
• Strong leasing, continued occupancy gains and positive leasing
  spreads: The REIT completed a total of 254,409 square feet of
  leasing in the first quarter, comprised of 157,788 square feet of
  renewals and 96,621 square feet of new lease deals, increasing
  occupancy to 87.7% compared to 87.6% at December 31, 2018. Leasing
  spreads in the quarter were 18.5% above expiring or in-place building
  rents.
• Update on U.S. Portfolio: The REIT continues to see strong
  tenant demand at its two properties in Chicago, Illinois; 20 South
  Clark (purchased in February 2018) and 120 South LaSalle (purchased in
  August 2018), completing 44,837 square feet of leasing in the first
  quarter of 2019.
• Core-FFO and AFFO for the quarter: Core funds from operations
  (“Core-FFO”) was $14.2 million or $0.19 per unit, an increase of $2.3
  million and consistent on a per unit basis compared to the same period
  in 2018. Adjusted funds from operations (“AFFO”) was $11.8 million or
  $0.16 per unit for the three months ended March 31, 2019, an increase
  of $1.7 million and consistent on a per unit basis compared to the
  same period in 2018.
• Unit repurchases under Normal Course Issuer Bid (“NCIB”): During
  the first quarter the REIT repurchased for cancellation 648,905 units
  under its NCIB for a total cost of $4.0 million. Subsequent to quarter
  end, the REIT repurchased an additional 303,697 units for an aggregate
  investment of $5.8 million. The REIT intends to continue to repurchase
  units, up to 10% of the total outstanding units.
• Completion of Joint Venture Arrangement: On April 12, 2019, the
  REIT completed its sale of a 25% interest in six office properties
  located in the Greater Toronto Area to an investment fund advised by
  Wafra Inc. (“Wafra”), a sophisticated global private equity and
  alternative asset investor. The sale price for the 25% interest was
  $131.8 million, implying a 100% value of $527.2 million or $269 per
  square foot. This pricing represents a levered internal rate of return
  of 19% over the hold period for the buildings. On closing, the REIT
  repaid approximately $70 million in debt, including the short-term
  bridge financing related to the acquisition of 120 South LaSalle. In
  conjunction with the sale, the REIT received incremental debt on five
  of the six properties, resulting in $30.4 million of additional
  proceeds to the REIT at its share and extends the maturities by 1.5
  years. This refinancing increased the amount of fixed rate debt by
  $100.9 million. The REIT’s pro forma fixed rate debt is approximately
  78% after giving affect to interest rate swaps executed subsequent to
  March 31, 2019.

Current Unit Price Continues to Represent a Compelling Investment
Opportunity

The current price for the REIT’s units continues to reflect a
substantial discount to the REIT’s IFRS net asset value per unit of
$8.49 at March 31, 2019. As previously communicated, management
continues to believe that there is a substantive basis to support a net
asset value of $8.49 per unit, including:

• Wafra’s investment provides a market value for $527.2 million of
  the REIT’s assets: The price received from a large sophisticated
  global investor for six properties in the Greater Toronto Area
  provides validation for the net asset value of 28% of the REIT’s
  portfolio. Further, the REIT received appraisals for each property
  that were consistent with the REIT’s transaction price.
• Recent acquisitions in the United States: The REIT’s
  acquisition of its two U.S. assets in Chicago, Illinois each occurred
  in 2018, and accordingly, represent recent market trading prices.
  Management continues to observe multiple comparable sales in the
  Chicago market at pricing parameters in excess of the REIT’s
  acquisition metrics.

The following is an illustration of the construction of the REIT’s net
asset value at March 31, 2019:

This gap between the prevailing trading price and net asset value has
created a compelling investment opportunity to purchase units of the
REIT. Specifically, the prevailing market price implies an 8.4%
capitalization rate for the ‘other properties’ in the table above on
next twelve months expected net operating income, which is inconsistent
with current valuation metrics for comparable properties.

Continued Unit Repurchases

As a result of the gap between the prevailing trading price and net
asset value, management is committed to repurchase up to 10% of the
REIT’s units outstanding through its NCIB. This will reduce the number
of outstanding REIT units, which is accretive to net asset value and per
unit metrics for unitholders. Management is extremely pleased with the
REIT’s portfolio of assets and operating results to date. As such,
management believes that the repurchase of units affirms the
attractiveness of the portfolio and is the most prudent use of capital
at the present time.

Suspension of Distribution Reinvestment Plan

Consistent with the plan to continue unit repurchases, the REIT’s Board
of Trustees have elected to suspend the REIT’s distribution reinvestment
plan (“DRIP”) until further notice. Commencing with the May distribution
to be paid on June 17, 2019, unitholders who elected to participate in
the DRIP will receive the declared cash distributions on the
distribution payment date. The suspension of the DRIP is intended to
preserve value and eliminate dilution for the REIT’s unitholders.

CONFERENCE CALL AND PRESENTATION DETAILS

Senior management will host a live conference call at 9:00 a.m. ET on
Monday, May 6, 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 http://www.snwebcastcenter.com/webcast/slate/2019/0506.
A replay will be accessible until May 20, 2019 via the REIT’s website or
by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 2992905)
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 41 strategic and well-located real
estate assets located primarily across Canada’s major population centres
including two downtown assets 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 $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 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 [email protected] 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,
IFRS net asset value, 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,
  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 and comprehensive income adjusted for
  certain items including leasing costs amortized to revenue, change in
  fair value of properties, change in fair vale of financial
  instruments, disposition costs, depreciation of hotel asset, 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.
• IFRS net asset value is defined as the aggregate of the carrying value
  of the REIT’s equity, Class B LP units and deferred units.
• Adjusted EBITDA is defined as earnings before interest, income taxes,
  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.

Calculation and Reconciliation of Non-IFRS Measures

The tables below summarize a calculation of non-IFRS measures based on
IFRS financial information.

The following is the calculation of IFRS net asset value on a total and
per unit basis at March 31, 2019 and December 31, 2018 to the REIT’s
consolidated financial statements:

Contacts

Investor Relations
Tel: +1 416 644 4264
Slate Office REIT
[email protected]