Breadcrumb trail links
The Trust is particularly affected by the home working culture as the focus is on the office space
Published June 26, 2024 • Last updated 1 week ago • 2 minutes reading time
You can save this article by registering for free here. Or log in if you already have an account.
The Royal Bank Plaza (left) is seen in the financial district of Toronto, Ontario on February 21, 2020. Photo by Stephanie Foden/Bloomberg
Article content
Slate Office REIT, whose portfolio includes properties in Canada and the U.S., defaulted on $158 million in debt despite an ambitious restructuring plan that included selling significant assets. It appears that broader economic trends and industry weaknesses have hampered the company's efforts.
Last year, Slate announced plans to reduce the REIT's $1.175 billion debt load by selling 40 percent of its assets in a move aimed at raising much-needed cash to pay down debt.
Display 2
This ad hasn't loaded yet, but your article will continue below.
THIS CONTENT IS FOR SUBSCRIBERS ONLY
Subscribe now to read the latest news from your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and others.
- Daily content from the Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from the Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic copy of the print edition for viewing on any device, sharing and commenting.
- Daily puzzles, including the New York Times Crossword.
SUBSCRIBE TO UNLOCK MORE ARTICLES
Subscribe now to read the latest news from your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and others.
- Daily content from the Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from the Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic copy of the print edition for viewing on any device, sharing and commenting.
- Daily puzzles, including the New York Times Crossword.
REGISTER / LOGIN TO UNLOCK MORE ARTICLES
Create an account or log in to continue your reading experience.
- Access articles from across Canada with one account.
- Share your thoughts and join the conversation in the comments.
- Look forward to additional articles every month.
- Get email updates from your favorite authors.
Sign in or create an account
or
Article content
However, demand for office space has not recovered to pre-pandemic levels, and high interest rates have put additional pressure on the sector. Slate is particularly affected because it focuses on office space, which currently has the highest vacancy rates in the commercial real estate sector.
According to Altus Group Ltd., the vacancy rate for office space in Canada has been 17.5 percent for four consecutive quarters. In contrast, Slates REIT reported a vacancy rate of 22.3 percent in the first quarter. Before the pandemic, the vacancy rate in Canada was about two percent.
These challenges are compounded by the fact that Slate has variable-rate mortgages. According to CIBC Capital Markets' default notice, the weighted average interest rate on the REIT's mortgages is 6.3 percent annually. With the Bank of Canada only just beginning to cut its benchmark interest rate and the U.S. Federal Reserve delaying its own cuts, debt-servicing costs continue to weigh on Slate's cash flow.
To save money, Slate reduced its monthly distribution by 70 percent in early 2023 and eventually eliminated it altogether. In addition, the company put several assets up for sale. Despite these measures, Slate announced Tuesday that it would not make cash interest payments on three convertible notes due on June 30 and August 31.
Display 3
This ad hasn't loaded yet, but your article will continue below.
Article content
At the same time, Slate Asset Management, the REIT's external manager, continues to expand its portfolio and on June 10 announced the acquisition of the World Seafood Center in Oslo, Norway, for approximately NOK 1.3 billion (CAD 167 million). The company said in a press release that this is consistent with its strategy of focusing on stable, income-generating assets such as grocery stores, pharmaceutical facilities and logistics centers. The status of the deal is still uncertain.
In a statement, Slate said it “continues to make progress on its previously announced portfolio rebalancing plan” and is working with senior lenders to “find a mutually acceptable path forward.” However, senior lenders have issued default notices that prevent the REIT from making any further interest payments on its outstanding notes.
Editor's recommendations
-
These large REITs have cut their distributions
-
Should I invest more in REITs?
The impact on Slate's publicly traded units has been severe, with shares down 94 percent over the past five years as investors continue to fear that a debt restructuring could wipe out their equity value. The company did not respond to requests for comment.
• Email: [email protected]
Bookmark our website and support our journalism: Don't miss out on the business news you need to know – bookmark financialpost.com and sign up for our newsletters here.
Article content
Share this article on your social network