I would now like to turn the conference call over to Shivi Agarwal. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to the Q4 2025 Conference Call for Slate Grocery REIT. I'm joined this morning by Blair Welch, Chief Executive Officer, Joe Pleckaitis, Chief Financial Officer, Connor O'Brien, Managing Director, Allen Gordon, Senior Vice President, and Braden Lyons, Vice President. Before getting started, I would like to remind participants that our discussion today may contain forward-looking statements, and therefore we ask you to review the disclaimers regarding forward-looking statements as well as non-IFRS measures, both of which can be found in management's discussion and analysis. You can visit Slate Grocery REIT's website to access all of the REIT's financial disclosure, including our Q4 2025 investor update, which is available now. I will now hand over the call to Blair Welch for opening remarks.
Thank you, Shivi, and hello, everyone. We are pleased to report strong fourth quarter and year-end results for Slate Grocery REIT. The REIT completed over 1.7 million sq ft of total leasing throughout the year at attractive rental spreads that continue to drive strong performance. Renewal spreads were completed at 14.9% above expiring rents, and new deals were completed at 34.9% above comparable average in-place rent. Adjusting for completed redevelopments, same property net operating income increased by $3.3 million, or 2%, on a trailing 12-month basis. Portfolio occupancy remained stable at 94.4%, and our portfolio's average in-place rent of $12.86 per sq ft remains well below the market average of $24.24, providing significant runway for continued rent increases. The REIT has a weighted average interest rate of 5%, with over 87% of its debt having a fixed interest rate. This provides a stable outlook for the REIT's near-term financing costs.
Subsequent to quarter-end, the REIT refinanced an eight-property portfolio for $90 million to consolidate existing property-level mortgage loans. We continue to see strong demand for high-quality grocery-anchored real estate among the lender community, and the REIT's weighted average capitalization rate remains well above the REIT's weighted average interest rate for outstanding debt, allowing the REIT to maintain positive leverage. During the fourth quarter, the REIT completed two strategic transactions to strengthen tenant mix and further delever the portfolio. In December, the REIT acquired the remaining minority interest in a 10-asset joint venture portfolio for $5.7 million, bringing its ownership to 100%. This provides the REIT with an enhanced refinancing flexibility and the ability to capture further mark-to-market opportunities. In the same month, the REIT strategically disposed of a non-grocery-anchored property in Flower Mound, Texas, using proceeds to further delever the portfolio.
We continue to have strong conviction in the outlook for grocery-anchored real estate. Recent investments by leading grocery operators in store-based fulfillment reinforce the critical importance of a physical grocery store. At the same time, fundamentals remain favorable, with elevated construction costs and tight lending conditions continuing to constrain new retail development and overall availability. We believe these fundamentals, combined with the resilience of consumer spending on food and essential goods, underscore the long-term stability of our portfolio of grocery-anchored real estate. On behalf of the Slate Grocery REIT team and the board, I'd like to thank the investor community for their continued confidence and support. I will now hand it over for questions.
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Sairam Srinivas from ATB Capital Markets. Your line is now open.
Thank you, Operator. Good morning, Blair. Good morning, Shivi, and morning, team.
[cross talk].
Just looking at the cadence of option-based renewals this year, how do you see them impact your 2026 leasing? What I'm trying to get to is essentially the proportion of GLA that's coming up for renewals and how much of that is essentially option-based leasing.
Yeah. I think that we've had 11 straight quarters of very strong leasing spreads on new leases and renewals. Every quarter is different. It depends on how much square foot, how many square feet each quarter renews, and what's their in-place rent. It changes every quarter. But I think the long-term 11 quarters in a row speaks to what we can continue to see in 2026 and going forward. And we're excited about the rents that are coming due in the space that we have. And we can talk more, but we are not afraid of getting space back. I mean, we are focused on essential goods, but we've had some good stories as it relates to getting space back from retail tenants that might go through restructuring. It's very competitive, and we see that as an opportunity to increase rents.
Less than 10% of the Gross Leasable Area is expiring in 2026.
Yeah. And as a candidate, the GLA by overall is actually pretty low. So again, I think this was 2025, I guess, was the biggest year of leasing for you guys. Probably just looking at same property NOI, I know the leasing numbers, as you said, have been really strong over the last 13 quarters now. But now looking ahead, when do you think it will start showing up in your NOI numbers?
Well, I think we've been seeing it, and I think we will continue to see single-digit NOI growth, whether that's 2%-5% over the coming years. I think we've been performing that way. We're confident in leasing spreads to tight market. Our management team's strong. Our leasing team's strong. We're seeing demand across the space. So I think it will just continue to be a very defensive, stable business for us.
That makes sense. Lastly, Blair, what's your outlook on leverage? I know obviously, you guys have made some progress on paying some of the debt down. Where do you see that number kind of stabilizing this year?
Yeah. I can let Joe speak in here. But it shot up from the reporting, but we kind of waited to refine and delever post-quarter-end because we had to consolidate the JV acquisition that we did. Our target is to continually delever, and I think we're on that target. But when quarter-end happened, we had acquired some JV interest, consolidated them, then post-quarter-end, we have subsequently, and we'll continue to delever the business. Joe, I don't know if you want to add anything.
Yeah. No, that's exactly right, and it's more of a point in time right now and a timing issue. Again, we refinanced that star portfolio post-quarter-end. We used the sale proceeds from that asset to delever and used some net proceeds from that refinancing to repay the revolver. So again, more of a point in time. So it crept up the last couple of quarters, but I see that normalizing moving forward.
Sounds good, guys. That's all from me. Thank you. I'll turn it back.
Thanks, Sairam.
Thank you. Your next question is from Golden Nguyen from TD Securities. Your line is now open.
Good morning, everybody. Nice to see an uptake in leasing activity this quarter. I recall you had some larger vacancies in the portfolio from earlier in the first half of 2025. Just wondering if you had any updates on these properties.
On the vacancies, I think the team did a really good job continuing to engage with the tenant relationships we have across the portfolio. There's certain headwinds coming online. I think we see a lot of those leases coming on throughout 2026. One of the redevelopments, particularly, we've been working through at Culver Ridge, the third and final tenant as part of that redevelopment will be coming on later this year, and we'll start contributing to the NOI of the portfolio in kind of the second half of this year.
Great. Thanks. Just one more from my end. Just turning to the transaction market, maybe if you could talk about what you're seeing in the market today and how that outlook has changed from a few months ago, and do you think maybe that could signal acquisitions resuming this year for you guys?
Yeah. I think when it comes to capital allocation, we continuously speak to our board on how we deploy capital. I would say, as it relates to the broader market, the availability of debt financing is strong for this asset class and in the United States. I think over the last several years, one of the kind of breaks on transaction volume has been the bid-ask spread financing costs. If you think they're 4%-4.5% 10-year and you add 170-190 basis points, your borrowing costs are six, six plus . So cap rates need to be wider than that, and people weren't willing to sell for that. I think people have come to the realization where the market is, and I think you will see more transactions because I think people are comfortable with that now.
But it's taken some time for those kind of fundamental agreements to kind of take place. Slate Grocery REIT's in a really good place because where our IFRS cap rate is to financing has positive leverage, and we're seeing the market kind of in that space, which is different than some of our Canadian peers, I would say. But we're confident that there'll be more acquisition activity that will be interesting for us to look at in 2026.
Appreciate the caller. I'll turn it back now.
Thanks, Golden.
Thank you. Your next question is from Brad Sturges from Raymond James. Your line is now open.
Good morning, guys. Just on the consolidation of the JV interest there, just wondering if you could give a little bit of color of what was driving out of the mechanics of it for the acquisition to occur in the quarter?
Joe, morning, Brad. Joe, why don't you tackle that one for us?
Thanks, Brad. So yeah, with that purchase, we now acquire 100% ownership of that portfolio. From an accounting standpoint, it becomes fully consolidated on our financials. So we really took that investment from a joint venture on our balance sheet to full consolidation of all the assets. And I think with that acquisition, what it allowed us to do as well is to, again, simplify the structure from a financing standpoint as well. So once we purchased that remaining interest, what we were able to do is consolidate three separate mortgages into portfolio refinancing, which we closed post-quarter-end. And again, we got very favorable pricing, competitive pricing, and really what we're seeing in the market today. So that loan is an 8-asset portfolio, $90 million of principal at SOFR plus 180.
Again, that really just shows you the competitiveness of the lending environment right now for grocery-anchored real estate.
Was that a negotiated deal with the minority interest, or was it a trigger of a right or an option type thing?
It was negotiated, Brad. We have a very strong relationship with our partner. I think they're great at what they do. I think they had some needs outside of this portfolio that they wanted to deal with and needed a use of proceeds. I think we negotiated a very good acquisition price for Slate Grocery REIT and our unit holders. So I think it worked for both. There wasn't a trigger event.
Gotcha. Okay. That makes sense. And then in terms of remaining minority interests, there's a few assets still that are equity-counted. Is that something you would pursue consolidating further, or how should we think about that?
Yeah. I mean, I think that we have absolutely no issues with any of our JV partners. Those were acquired through the acquisition of the annuity portfolio. That being said, I mean, just like on the Pine Tree JV that we were talking about, the world changes, and different partners have different needs at different times. If that comes up and it makes sense for the REIT, we will look at it. But there's no trigger event or need at this time. Everything's moving well. But we will look to the opportunistic because we really like the assets that we own. And if the situation comes up, we'll do it. But we're fine how it is now too.
Yeah. Okay. Last question. Just on the asset sale, can you comment on cap rate?
There's a lot of interest from the buyer community for a non-grocery-anchored asset in the Dallas MSA, and cap rate came to about a mid-seven cap for that asset.
Perfect. Thank you.
Thank you. Once again, ladies and gentlemen, please press star one should you wish to ask a question. And your next question is from Tal Woolley from CIBC Capital Markets. Your line is now open.
Hey, good morning, everybody. I just wanted to start off just wondering, you'd mentioned earlier, maybe expect to see acquisition activity pick up over the course of particular markets, property types that you're particularly interested in. And then I guess maybe longer term, given that you just said so you like your own assets as well, instead of acquiring new stuff, should the focus for the REIT really be trying to bring in the non-controlling interest, the joint venture interest first?
Hey, morning, Tal. So to your first question, I mean, since the inception of Slate Grocery, we've had a thesis, and I think it's proved well that given our performance over the last one, three, and five years has been really strong, we focus on the best one or two grocer in a market at buying a low-in-place rent. And that has been our thesis. We will continue that thesis. It's expensive to build this stuff. The market is tight. And it's really about understanding our tenants. That's why we want to be with the best tenants in the regional market. And our team has built those relationships over the last 15 years that are very strong. And we would love to add scale in the markets we're in.
And as we look to new markets, it's, "Can we buy more than one over time?" So I mean, it hasn't changed. We've always been that way. It's really focused on low-in-place rents with a good grocer. And that's our strategy. In the U.S., there's 40,000 grocery stores, so there's a lot of products to look at. And then as it relates to our own assets, Slate was able to bring in our North American Essential Fund a couple of years ago. I think that's the JV interest you're talking about. We talk to our board all the time about how to maximize value. And we thought that was a great deal and is a great deal. We looked at whether should we buy assets? Should we redevelop our own assets? That's a continuous thing. And I think the team has proven that we are creative to do that.
We'll work with our board to do what's right in the best interest of all the unit holders, of which Slate Asset Management is the largest. I think we're creative. We'll continue to look at the market. We love this business. Slate Asset Management has over 600 grocery stores globally now, and we want to continue to grow. We think the U.S. is a great market to do that.
Okay. And just on the $90 million refinance, do you have the rate you achieved on that?
Hey, Tal. So it's a floating rate, SOFR plus 180, excuse me. And we also entered into a 12-month pay-fixed swap at close, which would bring the all-in rate for that loan to 5.3%.
Okay. And is that 5.3, is that a pretty fair representation of where you guys could borrow with fresh debt right now?
Yeah. Again, I think it depends on, one, the creditworthiness of the anchor, location. I think there's a couple of factors there. But I think over the last few deals we've done, I think you're in that, call it, 170-185 range over SOFR right now or over the ten-year Treasury, whatever term you're using. So I think that's pretty indicative of what pricing is today.
Okay. That's great. Thanks very much, gentlemen.
Thank you. Once again, please press star one should you wish to ask a question. There are no further questions at this time. I will now hand the call back over to Shivi Agarwal for the closing remarks.
Thank you, everyone, for joining the Q4 2025 Conference Call for Slate Grocery REIT. Have a great day.
Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.