Post by
incomedreamer11 on Feb 20, 2024 10:19am
TD comments after conference
Event Q4/23 results and forecast update.
Impact: NEGATIVE
Core FFO/unit (f.d.) of $0.07 was -30% y/y and met consensus, but a penny below our estimate on lower NOI. Q4 results showed a further softening of office fundamentals across Slate's portfolio with SPNOI declining 2.1%. Occupancy was -10bps q/q to 78.5% but should remain stable with only 4.8% of its portfolio maturing in 2024 and leasing activity beginning to turn more positive.
Leasing update. Slate completed ~80k sf of leasing in Q4 and announced a new 15-year, 107k sf lease with a large Canadian financial technology business (link). The lease commences in 2025, and should add ~$3mm in annual NOI. Looking ahead, leasing interest remains strong with management currently in active discussions for over 700ksf of new deals.
Portfolio Realignment Plan. The plan calls for the sale of ~40% of the REIT's GLA/ IFRS Asset Value in order to reduce leverage and bring the REIT back onside lender covenants (i.e. sub 65% D/GBV). Post quarter, Slate completed the sale of The Sheridan Exchange in Mississauga, ON for $19.2mm (~$160/sf but below its IFRS carrying value), and currently has another 10 properties (~$120.0mm) in asset sales under contract/negotiation (~12.7% of GLA).
Our forecast has $125mm/$175mm in dispositions in 2024/25 resulting in leverage (D/GBV) reaching 65.2%/61.2% by year-end 2024/2025 (Exhibit 4).
Forecasts: Our 2024 AFFO estimate is -17% (lower NOI/higher interest) while our 2025 estimate is largely unchanged (+$0.01). Given its elevated leverage levels, the small change we made in Slate's asset value assumption (-4% on lower NOI) led to an outsized decline in our NAV estimate (-25% to $2.10).
TD Investment Conclusion
We are revising our risk rating for Slate Office to SPECULATIVE from High. The increase in our risk rating reflects the formal going concern basis note in the financial statements, owing to its high financial leverage and potential to breach lender covenants. While we continue to believe there is an eventual path to improve leverage as Slate continues to progress on its disposition program, there remains a large amount of execution risk given the more challenging transaction market. We are maintaining our HOLD rating and $1.00 target price.
Comment by
MARKOPOLIS on Feb 21, 2024 5:04am
Terrible not negative Going concern as I have stated this turkey is cooked