Slate Office REIT faces $158M debt default amid challenging market conditions

financialpost.com:

Slate Office REIT, whose portfolio includes properties in both Canada and the United States, has defaulted on $158 million of debt despite an ambitious restructuring plan that included selling off significant assets. It appears broader economic trends and sector weaknesses have hindered the company’s efforts.

Last year, Slate announced plans to alleviate the REIT’s $1.175-billion debt burden by selling 40 per cent of its assets. The move was aimed at generating much-needed cash to repay debt.

However, the demand for office spaces has not rebounded to pre-pandemic levels, and elevated interest rates have further pressured the sector. Slate has been particularly affected due to its focus on the office spaces, which currently have the highest vacancy rates in commercial real estate.

According to Altus Group Ltd., the office vacancy rate in Canada has remained at 17.5 per cent for four consecutive quarters. In contrast, Slate’s REIT reported a first-quarter vacancy rate of 22.3 per cent. Pre-pandemic, Canada’s vacancy rate hovered around two per cent.

Compounding these challenges is Slate’s exposure to variable-rate mortgages. According to CIBC Capital Markets’ notice of defaults, the weighted average interest rate on the REIT’s mortgages stands at 6.3 per cent annually. With theBank of Canada only just beginning to cut its benchmark rate and the U.S. Federal Reserve delaying cuts of its own, Slate’s debt servicing costs continue to strain its cash flow.

In an effort to save cash, Slate reduced its monthly distribution by 70 per cent in early 2023 and eventually halted it altogether. Additionally, the company put several assets up for sale. Despite these measures, Slate announced on Tuesday that it does not expect to make