Shareholders of Slate Office REIT (SOT-UN-T) have voted to temporarily remove a debt ceiling of 65 per cent of the trust’s gross book value to allow it additional flexibility while navigating a period of higher leverage and interest rates.
During a special meeting on Monday, the REIT’s unitholders voted 67 per cent in favour of the resolution to remove the restriction while 31 per cent were opposed, Slate reports in the announcement. The REIT’s largest shareholder, G2S2 Capital, had indicated prior to the meeting that it would back the motion, largely paving the way for it to pass.
The resolution was crucial to Slate’s current Portfolio Alignment Plan because lower property values in the office sector, combined with elevated interest rates during the past year 18 months, has lifted its debt-to-gross-book-value ratio from 61.9 per cent in Q3 2022 to 65.6 per cent as of its Q3 2023 financial report.
Board waives restriction to end of 2025
To obtain the support of G2S2, a private Canadian investment firm which is controlled by the Armoyan family, Slate management agreed to put a time limit on the removal of the debt ceiling.
It will be in force through Dec. 31, 2025.
Tuesday's announcement by Slate indicates the board “decided to exercise their discretion to implement the proposed amendment to the declaration of trust in the form of a waiver of the Restriction until December 31, 2025, rather than implement the proposed amendment as a blanket removal of the Restriction”.
G2S2 also negotiated an agreement to reduce the size of the Slate Office REIT board from eight to six members, which will be brought forward at the upcoming annual general meeting.
G2S2 controls almost 19 per cent of Slate Office REIT's shares.
Slate’s Portfolio Alignment Plan was announced in November and includes an intention to divest 40 per cent of its portfolio (measured by gross leasable area) over the next year or so.
Many of the properties it plans to sell are already listed while others are to be added during 2024.
While the voting results were released without management comment, interim CEO Brady Welch had commented on the overall strategy when it was announced in conjunction with the release of the Q3 financial report.
“Looking ahead we want to own high-quality assets with strong occupancy, tenants and cash flow in markets with economic tailwinds and stable office demand,” Welch said during the Q3 conference call with analysts and investors.
“We believe the Portfolio Alignment Plan that we are introducing will not only improve the REIT’s balance sheet and liquidity, but also enhance the portfolio composition resulting in a more focused and resilient REIT."
Slate also suspended its distributions as part of the plan to retain additional cash, estimated at about $10.2 million annually.
Slate reported total assets of $1.822 billion in its Q3 financials, down slightly from $1.869 billion in the same period of 2022.
Its total debt rose to $1.19 billion, from $1.15 billion in 2022.
It reported a net loss of $34.73 million, down from a profit of $18.36 million a year earlier.
Rental revenue was just over $51 million in Q3, almost identical to the year-earlier period. NOI was $26 million, down from $26.86 million in Q3 2022.
Portfolio occupancy had declined to 78.6 per cent from 81.1 per cent.