Slate Office REIT 9 00 Convertible Unsecured Subordinated Debentures Exp 28 Feb 2026 T.SOT.DB

TD LOWERS NAV PRICE TARGET THEY VISITED CHICAGO PROPERTIES

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Event Chicago property tour highlights, closing of $131.8 million joint venture with Wafra and estimate updates. Impact: MIXED Chicago Property Tour. On April 16, we toured the REIT's two Chicago assets, 120 South LaSalle and 20 South Clark Street. The assets are well-located within Chicago's Central Loop and we see NOI upside through the execution of the renovation plans at 20 South Clark. However, with ~10% market vacancy and a combination of two large departures and a significant amount of supply expected to come on stream through 2023, including ~905,000sf in the Central Loop node, we believe that it will be difficult for the REIT to push rents meaningfully in the near-term. GTA Joint Venture. On April 15, the REIT completed the sale of a 25% interest in six suburban GTA office properties to Wafra for $131.8 million ($269/sf). The REIT also up-financed five of the six properties for additional proceeds of $31.5 million and increased fixed rate debt by $100.9 million. Slate now has ~$50 million of available liquidity. Estimates. Our AFFO/unit estimates decrease by ~10% to reflect model adjustments related to IFRIC 21. We now expect a ~3% AFFO decline in 2019, and 3% AFFO growth in 2020. Our NAV estimate declined 8% to $7.60 on the back of lower NOI. TD Investment Conclusion We believe that Slate is taking the steps necessary to position itself for long-term stability as management turns it focus to strengthening the balance sheet. With the additional $26 million of annual savings from the distribution cut, in conjunction with the proceeds from the capital recycling program, Slate expects to reach leverage of ~57% by year-end and begin acquiring assets again. Additionally, we believe the REIT's Chicago properties are good long-term investments, that should contribute to earnings and NAV growth over time. While Slate appears to be attractively valued on both a P/NAV and P/AFFO basis, we believe the unit price will be range-bound until the REIT executes its leverage reduction program and begins to generate consistent earnings growth. We are maintaining our HOLD rating but lowering our target price to $6.50 from $7.00