Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Slate Grocery REIT (SRRTF, Financial) reported a strong third quarter with significant leasing activity, completing over 850,000 square feet of total leasing.
- New deals were completed at 24.8% above comparable average in-place rents, indicating strong rental growth.
- The company successfully refinanced $500 million of debt at favorable terms, reducing balance sheet risk.
- Same property net operating income increased by 6.2% year over year, reflecting healthy operational performance.
- The REIT's average in-place rent remains significantly below the market average, providing potential for future rental increases.
Negative Points
- Despite strong operational performance, the REIT's units continue to trade at a discount to net asset value.
- The financing environment remains challenging, although the company managed to secure favorable refinancing terms.
- Occupancy rates are expected to remain in the low 90s, with limited room for significant improvement.
- The REIT faces upcoming mortgage maturities, requiring continued focus on refinancing efforts.
- High construction and borrowing costs are limiting new retail development, which could impact future growth opportunities.
Q & A Highlights
Q: With strong leasing momentum reflected in results, how do you view occupancy levels? Is there room for further expansion?
A: Blair Welch, CEO: We are in a stable zone, typically in the low 90s. We expect to bounce between 94% to 96% occupancy. The focus is more on rental spreads for NOI growth rather than occupancy increases.
Q: Excluding fixed options, where do you see rental spreads trending on a true mark-to-market basis?
A: Connor O'Brien, Managing Director: We achieved 14.1% non-option renewal spreads this past quarter, consistent with mid-teens over the last six quarters. We expect this trend to continue, focusing on non-option renewals for NOI growth.
Q: Regarding the recent refinancing, are the spreads over SOFR unchanged going forward?
A: Joe Pladis, CFO: Yes, there was a marginal five basis point increase to the existing facility, reflecting the quality of our assets and lender confidence in our long-term growth.
Q: With upcoming mortgage maturities, what are your expectations for refinancing rates?
A: Joe Pladis, CFO: We have competitive bids for upcoming maturities, with risk spreads stable. The main volatility is in the underlying treasury rate. We project a weighted average interest rate of about 4.8% post-refinancing.
Q: How do you see leasing spreads evolving in 2025, especially with non-grocery spaces coming up for renewal?
A: Connor O'Brien, Managing Director: We expect mid-teens leasing spreads with some volatility. Lower grocery renewal volume in 2025 should support consistent NOI growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
