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

RE:RE:RE:sot_-_q3_2024_financial_statements_vsedar Note 28

[TVR]

The underlying business of SOT.UN appears to be doing quite well since the average occupancy across the portfolio is only 79% and they are still making money on the operations side.  The problem is simply the debt level is much too high.  At this point the REIT has few, if any, unencumbered properties it can sell.  Any future property sales will only generate modest amounts of net cash after mortgages are dealt with. At this point SOT.UN can only be rescued by a large capital infusion.  So we have to wait and see what SOT.UN and Armoyan have in the works as a recapitalization plan.  Whatever it is willl need to be substantial and transformative to alllow the REIT to continue as a going concern.

I think the magnitude of recapitalization required is above $200 million to put the REIT on a sound financial footing.  I suspect the reason this is taking so long is SOT.UN/Armoyan are simply having trouble coming up with this amount of new capital.  Persuading the debenture holders to convert 100% to equity would remove around $160 million of debt , BUT that is a big ask and by no means a sure thing that the debenture holders would go for it.  The debenture group could easily decide that they are better off rolling the dice on a forced sale of the REITs assets.  Anything that offers the debenture holders much less than full recovery on their investment has little chance of being approved.

A major problem at this point is the delisting review extension runs out December 24 or thereabouts.  If the units and debentures are delisted,  or subject to a cease trading order, that could make potential capital raising options like a rights issue unworkable.  If a viable plan is not on the table in the next week or two I suspect the outcome for SOT.UN becomes a forced asset sale under bankruptcy proceedings.  In that event it is highly unlikely there would be any surplus for equity unit holders and the debenture holders are at risk of a major shortfall on their investment.