Slate Office REIT, it gets confusing…

While I’m enjoying my vacation, things are moving fast with Slate Office REIT and I barely have time to follow the news.

Lots of things have happened since my initial post on SOT.UN:

  • Slate Office has sold two GTA buildings for a good price.

    The Disposition is occurring at a 12.0% or $10.4 million premium to the REIT’s purchase price; the sale price represents a 5.0% increase to the REIT’s June 30, 2022 IFRS value, further validating the net asset value of the REIT.

    Source: Slate Office REIT Announces Disposition of Office Property in Toronto, Ontario for $97.0 Million
    I have doubts that selling 88.8% and 100% occupied buildings in the most expensive Canadian real estate market can really validate the NAV. C’mon guys, try to sell your 50-60% occupied buildings with these kinds of gains! But higher NAV translates into higher fees for the management, which are 0.3% of gross book value.

  • Then, instead of doing something valuable for the REIT and shareholders, management decided to issue debentures (0.25% fee?) and acquire another building (1% fee?). They just can’t stop collecting those fat fees, huh?

    Each Debenture will be convertible into freely tradeable trust units of the REIT (“Units”) at the option of the holder at any time prior to the close of business on the earliest of (i) the last business day before December 31, 2027 (the “Maturity Date”); or (ii) if called for redemption, the business day immediately preceding the date specified by the REIT for redemption of the Debentures, at a conversion price of $5.50 per Unit…

    Source: Slate Office REIT Announces Agreement to Acquire US$19.8 Million Class A Office Property in Chicago, Illinois and Bought Deal Offering Comprised of C$45 Million of Convertible Debentures
    For me, this is a much better validation of the current NAV, which is equal to ~C$5.50 then.

  • Finally, George Armoyan published an open letter in which he told what everyone had known for a long time:

    “We have tried for months to work constructively with SOT’s management and trustees, but it has become clear that they only seek to maintain the status quo and continue to line SLAM’s pockets with management fees,” said George Armoyan, Executive Chairman of G2S2. “We are releasing this letter to appeal directly to our fellow unitholders to push for change and to hold the trustees and management accountable.”

    Source: G2S2 Capital Inc. Issues Open Letter to Slate Office REIT Unitholders

  • The confusing part of Armoyan’s actions is his sudden sale of shares at the same time:

    Source: CEO.CA

    Let’s see if he will sell more, but I hope there is some simple explanation here.

  • Slate Office REIT issued a meaningless statement in response, saying that they were “working hard” to enhance shareholders’ value.
    The only sentence worth mentioning is the following:

    In these conversations, Mr. Armoyan expressed interest in acquiring certain of the REIT’s assets located in Atlantic Canada.

    Source: Slate Office REIT Issues Statement Regarding Unitholder Letter
    If it is true, and Armoyan’s goal is not to turn around weighed down by fees REIT, but simply grab the Atlantic portfolio for a low price and move on, the future for small shareholders might not be as bright as one might hope.
    Another confusing point, though.

  • Today SOT.UN management announced a review of strategic alternatives, basically confirming that they were not doing enough before. Let’s wait and see what “value enhancing” ideas they have now.

I’m not buying more shares until things clear up.

3 comments on “Slate Office REIT, it gets confusing…”

  1. Good news:

    G2S2, through its wholly owned subsidiary, Armco Alberta Inc. (“Armco Alberta”), acquired $7,100,000 principal amount of Slate Office 7.50% Convertible Unsecured Subordinated Debentures (“Convertible Debentures”) on October 25, 2022 pursuant to a bought deal public offering of the REIT.

    Immediately after the transaction that triggered the requirement to file this report, G2S2 had ownership of, and control over, 12,703,400 Units and $7,100,000 principal amount of Convertible Debentures which, if converted, would entitle G2S2 to an additional 1,290,909 Units, representing a securityholding percentage of 17.18% of the Units (determined on a partially diluted basis assuming the conversion of only G2S2’s $7,100,000 principal amount of Convertible Debentures).

    I wonder why he bought debentures instead of just buying more shares.
    Buying shares even at C$4.80/share (today’s price is C$4.70) would result in around ~1.48M shares, or 190K extra. If you add recent sale of shares at C$4.50… Well, it is still confusing. 🙂

  2. Well, I just raised my concerns yesterday, and today Armoyan has already addressed both of them:

    SOT indicated in their recent press release that G2S2 has expressed an interest in acquiring certain Atlantic Canada assets from the REIT. This is not G2S2’s intent and is not the focus of our requisition. As prudent investors, we often tour the properties of companies we invest in.

    Source: G2S2 Capital Inc. Requisitions Special Meeting of Slate Office REIT Unitholders, Nominates Four Highly Qualified Nominees to Align Board with Unitholders Interests, and Highlights Strategy to Unlock Value for Unitholders

    I wouldn’t say that it completely clears everything up for me, but now Armoyan’s actions make more sense.
    The next move is from SOT.UN management. Let’s see what they can offer in response.

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