Slate Office REIT 9 00 Convertible Unsecured Subordinated Debentures Exp 28 Feb 2026 SLTTF

TD BANK NEGATIVE ON SLATE OFFICE REIT

[MARKOPOLIS]

Slate Office REIT (SOT.UN-T) C$1.02 Q3/23 First Look: Results Miss; Distribution Suspended Jonathan Kelcher, CFA Golden Nguyen-Halfyard, (Associate) Event Q3/23 results and announcement that Slate's $0.12/unit annualized distribution will be suspended. Conference call is at 9:00 AM ET today (416-764-8658). Impact: NEGATIVE Our take: While we had not forecasted it, in light of other smaller cap, highly-levered REITs suspending their distributions this quarter (INO.un, HOT.un, and TNT.un), we were not overly surprised by Slate's decision. The savings amount to $10.2mm annually, which will be directed towards debt repayment/improving liquidity. New Portfolio Realignment Plan. Management expects to divest non-core assets that comprise ~40% of the REIT's total GLA. Dispositions are expected to continue through 2025, with a focus on certain Canadian markets. Although not stated, we expect sales to be predominantly in the Atlantic and Western Canadian portfolios along with select GTA assets (the REIT's two Markham assets are currently on the market). Proceeds will be targeted towards debt repayment and general liquidity for business operations. Core FFO/unit (f.d.) of $0.07 was -47% y/y, and below our estimate/consensus of $0.09. The miss to our estimate was due to higher interest expense and ~$300k of one-time bad debt expense. AFFO/unit (our calculation) of $0.05 was -35% versus our estimate. Operations SPNOI improved to +1.7% y/y (after backing out Q3/22 lease termination income), and was +3.2% versus Q2/23 (excluding the hotel asset). The REIT completed 277,599sf of leasing in the quarter (35 deals) at an average 4.9% rental rate spread. Occupancy declined 50bps q/q to 78.6%, largely due to increased vacancies across its GTA and Atlantic markets. That said, with minimal near-term lease maturities (0.8%/5.5% in 2023/2024), we expect occupancy rates to remain relatively stable over the near-term. Balance Sheet/Other D/GBV was +160bps q/q to 65.6%, while net debt/adjusted EBITDA (SOT's calculation) was +0.5x to 13.1x. Liquidity stood at $11.7mm (Q2/23: $36.1mm). As of Q3/23, the REIT had ~$51mm of remaining 2023 mortgage maturities. The REIT has called a special meeting of unitholders (December 29) in order to remove the 65% DOT limit on indebtedness to provide more flexibility around its portfolio realignment plan. In August, the REIT purchased the remaining 25% interest in a GTA property for $28.4mm

[Ladislav3]

Oooof those are some bad results. Even worse than I had expected. It's a bad time to sell these assets in the market as well so who knows what prices they will get (if they are able to get rid of them at all)... I will have to see what is said, if anything, about the need to remove the 65% limit on the conference call today. I have never had any faith in SLAM and suspect they would just use