Pat McKeough recently replied to a member of his Inner Circle asking for an opinion on Slate Office REIT. This trust just doubled its cash flow and revenue with a key acquisition, says Pat.
Q: Can I have your opinion of Slate Office REIT? Thanks.
A: SLATE OFFICE REIT (symbol SOT.UN on Toronto; www.slateofficereit.com) owns 34 office properties. In all, these buildings contain 44 million square feet. Atlantic Canada represents 49% of that leasable area, followed by Ontario (37%) and Western Canada (14%).
The REIT first sold units to the public at $10.00 each on August 27, 2012. Slate changed its name from FAM REIT in March 2015.
Must reading for your financial future You know your financial goals—this is the way to make them work. Pat McKeough has poured four decades of experience into this comprehensive new report, “Wealth Management and Retirement Planning”. It’s free and ready to read now.
|
Due to acquisitions of new properties, Slate’s revenue rose 207.4%, from $28.5 million in 2013 to $87.5 million in 2015. Cash flow soared 200.2%, from $7.6 million to $22.9 million. Slate sold new units to help pay for its acquisitions. As a result, cash flow per unit fell 35.4%, from $0.79 in 2013 to $0.51 in 2014. Cash flow then rebounded to $0.82 a unit in 2015.
The biggest of Slate’s recent acquisitions was its October 2015 purchase of Fortis Properties Corp.—the commercial real estate business of Fortis Inc. Its properties—located in Newfoundland and Labrador, New Brunswick and Nova Scotia—include 10 office buildings, one mixed-use office complex and three shopping centres. In all, they comprise 2.8 million square feet of space. Slate paid $304.0 million for the portfolio, which includes Cabot Place and TD Place in St. John’s, Newfoundland.
To help fund the Fortis purchase, the REIT formed a partnership with a Canadian institutional real estate fund. Under the deal, that partner acquired a 90% stake in three of the properties, while Slate took a 10% interest.
Dividend Stocks: Sells industrial and retail properties
On December 31, 2015, the REIT increased its stake in the three properties to 30%. It paid $28.8 million for the additional interest.
As part of Slate’s new focus on office buildings, it sold most of its industrial and retail properties in 2015 for $40.6 million.
In the three months ended March 31, 2016, the purchase of the Fortis properties increased the REIT’s revenue by 95.8%, to $27.6 million from $14.1 million a year earlier. Overall, cash flow jumped 119.8%, to $7.3 million from $3.3 million; cash flow per unit rose 23.5%, to $0.21 from $0.17, on more units outstanding.
The REIT pays monthly distributions of $0.0625 a unit; the annual rate of $0.75 yields a high 9.3%. In the latest quarter, distributions accounted for 90.3% of its cash flow. If you adjust for units issued under its distribution reinvestment plan (DRIP), the payout ratio falls to 85.7%.
Inner Circle recommendation: HOLD
For our view on why dividend stocks should get even more respect from investors, read Never underestimate the power of Canadian dividend stocks.
For our recent report on a Canadian REIT that we rate as a buy, read RioCan cuts risk, protects distribution.
