Sila Realty Trust, Inc. Second Quarter 2021 Results

TAMPA, Fla.–(BUSINESS WIRE)–Sila Realty Trust, Inc., or the Company, a public, non-traded real estate investment trust focused on healthcare properties, today announced operating results for the second quarter ended June 30, 2021.

Quarter Ended June 30, 2021 and Subsequent Highlights

• Net income attributable to common stockholders totaled $16.1 million; net income attributable to common stockholders per diluted share was $0.07.
• Net operating income, or NOI*, attributable to our operating healthcare properties totaled $40.5 million.
• Funds from operations, or FFO*, attributable to common stockholders equaled $44.2 million; FFO attributable to common stockholders per diluted share was $0.20.
• Adjusted funds from operations, or AFFO*, attributable to common stockholders equaled $41.3 million; AFFO attributable to common stockholders per diluted share was $0.19.
• On April 19, 2021, the Company acquired one healthcare property located in the Indianapolis market for an aggregate purchase price of $25.0 million, composed of 53,560 rentable square feet and is 100% leased to a single tenant.
• On May 19, 2021, the Company entered into a purchase and sale agreement for the sale of up to 29 data center properties, which constitutes the entirety of the Company’s data center portfolio.
• On July 22, 2021, the Company completed the sale of its entire data center portfolio for an aggregate sale price of $1.32 billion. The sale generated proceeds of approximately $1.29 billion, after transaction costs and other pro-rations, excluding defeasance and loan costs, subject to additional transaction costs paid subsequent to the closing date.
• Using proceeds received from the sale of the data center portfolio, the Company paid off all of its notes payable (seven data center notes payable and five healthcare notes payable), with an aggregate outstanding principal balance of $450.8 million ($305.2 million outstanding principal balance on the data center notes payable and $145.6 million outstanding principal balance on the healthcare notes payable) at the time of repayment. Additionally, the Company repaid $403.0 million on its credit facility in order to reduce leverage and with a goal to position the Company for future growth.
• In connection with the sale of the data center portfolio, our board of directors declared a special cash distribution of $1.75 per share of Class A, Class I, Class T and Class T2 common stock, which was paid on July 30, 2021, to stockholders of record at the close of business on July 26, 2021, in the aggregate amount of approximately $392.7 million.
• On July 20, 2021, the Company’s board of directors approved an updated estimated per share net asset value, or estimated per share NAV, of $9.95 of the Company’s common stock as of May 31, 2021. The aforementioned special cash distribution reduces the estimated per share NAV by $1.75, resulting in a new estimated per share NAV of $8.20, effective July 26, 2021.

Michael Seton, the Company’s Chief Executive Officer and President, stated, “We are pleased with the positive increase in net income, FFO and AFFO, when compared to the second quarter of 2020, which primarily resulted from the continued recognition of corporate cost reductions from the internalization transaction, as well as from a litigation settlement received by the Company from one data center tenant, which, for the calculation of net income, offset impairment losses recognized on two healthcare properties. The real estate impairments are primarily the result of our decision to divest certain non-strategic and underperforming assets as part of our objective to continue to maintain and build a high-quality healthcare portfolio. During the second quarter, we entered into a purchase and sale agreement to sell our entire data center portfolio and on July 22, 2021, we closed on the sale of all 29 data center properties, using proceeds generated to distribute meaningful liquidity to our stockholders through a special cash distribution, as well as significantly reducing the Company’s leverage. This momentous transaction transformed the Company into a pure-play healthcare REIT with, what I believe to be, considerable liquidity to grow and further diversify our existing healthcare portfolio in our continued efforts to maximize value for our stockholders.”

* An explanation of FFO, AFFO, and NOI, as well as reconciliations of such non-GAAP financial measures, which should not be considered alternatives to GAAP measures, to the most directly comparable U.S. GAAP measures, is included at the end of this release.

Financial Results

Quarter Ended June 30, 2021, Compared to Quarter Ended June 30, 2020

• Net income attributable to common stockholders was $16.1 million for the quarter ended June 30, 2021, an increase of 45%, compared to net income attributable to common stockholders of $11.1 million for the quarter ended June 30, 2020.
• FFO attributable to common stockholders was $44.2 million for the quarter ended June 30, 2021, an increase of 31%, compared to $33.7 million for the quarter ended June 30, 2020.
• AFFO attributable to common stockholders was $41.3 million for the quarter ended June 30, 2021, an increase of 40%, compared to $29.6 million for the quarter ended June 30, 2020.

The increase in net income attributable to common stockholders during the periods presented above is primarily due to the Company no longer incurring property management, asset management and other fees to the former advisor as a result of the internalization transaction. In addition, the Company recognized a $7.0 million lease termination fee received from a former tenant on April 23, 2021, as a result of a settlement agreement with a data center property tenant that was experiencing financial difficulty and stopped paying rent in October 2020. See Portfolio Overview—Data Center Properties section below for additional information. The increase in net income was partly offset by an increase in general and administrative expenses paid as a result of the internalization transaction, coupled with rent not being collected since October 2020 from the aforementioned tenant and impairment losses on real estate and goodwill recorded on two healthcare properties during the quarter ended June 30, 2021. See Portfolio Overview—Healthcare Properties section below for additional information. The increase in FFO during the periods presented above is primarily the result of the same factors, excluding the impairment loss on real estate during the second quarter ended June 30, 2021 (which is added back when calculating this metric). AFFO was further adjusted for impairment loss on goodwill and an increase in stock-based compensation due to additional equity awards granted to our executive officers and certain of our employees.

Operating Results

Quarter Ended June 30, 2021, Compared to Quarter Ended June 30, 2020

• NOI attributable to our operating healthcare properties was $40.5 million for the quarter ended June 30, 2021, an increase of 7%, compared to $37.8 million for the quarter ended June 30, 2020.
• Rental revenue attributable to our operating healthcare properties was $43.7 million for the quarter ended June 30, 2021, an increase of 5%, compared to $41.7 million for the quarter ended June 30, 2020.
• Same store NOI attributable to our operating healthcare properties was $39.1 million for the quarter ended June 30, 2021, an increase of 7%, compared to $36.7 million for the quarter ended June 30, 2020.

The increase in NOI, rental revenue and same store NOI attributable to operating healthcare properties during the quarter ended June 30, 2021, as compared to the quarter ended June 30, 2020, is primarily attributable to lease termination income received from two tenants at two healthcare properties, coupled with a decrease in property management fees, which the Company no longer pays to the former advisor due to the completion of the internalization transaction. Additionally, the increase in NOI during the second quarter ended June 30, 2021, is attributable to the acquisition of two operating properties and placement of two development properties in service since April 1, 2020.

Portfolio Overview

As of June 30, 2021, the Company owned 154 real estate properties, located in 70 markets, composed of approximately 8.6 million rentable square feet with an aggregate purchase price of approximately $3.2 billion, including capital expenditures on development properties placed into service. The Company’s properties had a weighted average occupancy of 93.3% and weighted-average remaining lease term of 9.3 years.

Healthcare Properties

During the second quarter of 2021, the Company acquired one healthcare property located in the Indianapolis market for an aggregate purchase price of $25.0 million, composed of 53,560 rentable square feet and is 100% leased to a single tenant.

During the second quarter of 2021, the Company recorded impairment losses on real estate and goodwill related to two healthcare properties. A tenant of one healthcare property that was experiencing financial difficulty vacated the space in March 2021, and a tenant of the other healthcare property terminated its lease agreement and vacated the space in July 2021. As of June 30, 2021, the Company had two vacant real estate properties that are currently being marketed for sale or re-tenanting.

Year-to-date, as a result of certain healthcare tenants experiencing financial difficulties, the Company entered into two settlement agreements, under which the tenants agreed to pay approximately $1.0 million in aggregate termination fees. To date, the Company has recovered approximately $0.6 million from these settlement agreement obligations.

Data Center Properties

On April 22, 2021, the Company entered into a settlement agreement with a data center property tenant that was experiencing financial difficulty due to deteriorating economic conditions driven by the impact of the COVID-19 pandemic and accelerating its modification of work strategy to a remote environment due to the pandemic. The tenant stopped paying rent in October 2020, and pursuant to the settlement agreement, the lease was terminated, effective immediately. The tenant vacated the space on June 20, 2021. In connection with the lease termination, the tenant paid the Company a $7.0 million termination fee, which the Company received on April 23, 2021. Subsequent to June 30, 2021, the Company collected an additional $75,000 related to the lease termination agreement with the tenant.

On May 19, 2021, the Company entered into a purchase and sale agreement with wholly-owned subsidiaries of Mapletree Industrial Trust, a real estate investment trust listed on the Singapore Exchange, for the sale of up to 29 data center properties owned by the Company, which constituted the entirety of the Company’s data center portfolio. On July 22, 2021, the Company completed the sale of its data center portfolio for an aggregate sale price of $1.32 billion. The Company generated proceeds of approximately $1.29 billion, after transaction costs and other pro-rations, excluding defeasance and loan costs related to prepayments of property level mortgage notes, subject to additional transaction costs paid subsequent to the closing date.

Balance Sheet and Liquidity

On April 19, 2021, the Company drew $15.0 million on its credit facility for the acquisition of a healthcare property and added the property to the unencumbered pool of its credit facility, which increased the total pool availability under the credit facility by approximately $13.8 million.

As of June 30, 2021, the Company had liquidity of approximately $241.4 million, consisting of $47.9 million in cash and cash equivalents and $193.5 million in borrowing base availability under its credit facility.

As of June 30, 2021, the Company had total principal debt outstanding of $1,404.2 million, consisting of $451.2 million of notes payable and $953.0 million of the credit facility, with a net debt leverage ratio, which is the ratio of principal debt outstanding less cash to fair market value of real estate plus the total aggregate cost of properties acquired after the net asset value date of May 31, 2021, of 38.2%. The Company’s outstanding debt was composed of 60.6% fixed rate debt (including debt fixed through the use of interest rate swaps) and 39.4% variable rate debt.

On July 16, 2021, the Company repaid $30.0 million on its credit facility, primarily with proceeds from a note receivable that was repaid on July 14, 2021.

On July 22, 2021, the Company removed 21 data center properties from the pool of the credit facility due to the sale of the data center portfolio. As a result of removing the properties from the pool of its credit facility, the total pool availability decreased by approximately $244.6 million.

On July 22, 2021, in connection with proceeds received from the sale of the data center portfolio, the Company paid off all of its notes payable, with an outstanding principal balance of $450.8 million at the time of repayment. Additionally, the Company repaid $403.0 million on its credit facility.

With the July repayments, the Company has $520.0 million debt outstanding on its credit facility, which is composed of 76.9% fixed rate debt fixed through the use of interest rate swaps and 23.1% variable rate debt.

Distributions

The following table summarizes the Company’s distributions paid and distributions declared during the second quarter of 2021 (amounts in thousands, except per share amounts):

On July 20, 2021, the Company’s board of directors declared a special cash distribution of $1.75 per share of Class A, Class I, Class T and Class T2 common stock. The special cash distribution was funded with proceeds from the sale of its data center portfolio on July 22, 2021. The special cash distribution was paid on July 30, 2021 to stockholders of record at the close of business on July 26, 2021, in the aggregate amount of approximately $392.7 million.

The following table summarizes the daily distributions approved and authorized by the board of directors to the Company’s stockholders of record as of the close of business on each day of the period commencing on August 1, 2021 and ending on August 31, 2021:

The following table summarizes the daily distributions approved and authorized by the board of directors to the Company’s stockholders of record as of the close of business on each day of the period commencing on September 1, 2021 and ending on September 30, 2021:

Supplemental Information

The Company routinely provides information for investors and the marketplace through press releases, SEC filings and the Company’s website at investors.silarealtytrust.com. The information that the Company posts to its website may be deemed material. Accordingly, the Company encourages investors and others interested in the Company to routinely monitor and review the information that the Company posts on its website, in addition to following the Company’s press releases and SEC filings. A glossary of definitions (including those of certain non-GAAP financial measures) and other supplemental information may be found attached to the Current Report on Form 8-K filed on August 13, 2021. A comprehensive listing of the Company’s properties is available at silarealtytrust.com/portfolio.

About Sila Realty Trust, Inc.

Sila Realty Trust, Inc. is a public, non-traded real estate investment trust headquartered in Tampa, Florida, that invests in high-quality healthcare properties leased to tenants capitalizing on critical and structural economic growth drivers. As of June 30, 2021, the Company owned 154 real estate properties, consisting of 29 data center properties and 125 healthcare properties, located in 70 markets across the United States. On July 22, 2021, the Company sold its data center portfolio, positioning the Company as a pure-play healthcare REIT.

Forward-Looking Statements

Certain statements contained herein, including those regarding our objective to maintain and build a high-quality healthcare portfolio, opportunities to enhance and diversify our healthcare portfolio and maximize stockholder value, and expectations regarding the payment of distributions to our stockholders, other than historical fact may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided by the same. These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties. No forward-looking statement is intended to, nor shall it, serve as a guarantee of future performance. You can identify the forward-looking statements by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are subject to various risks and uncertainties and factors that could cause actual results to differ materially from the Company’s expectations, and you should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond the Company’s control and could materially affect the Company’s results of operations, financial condition, cash flows, performance or future achievements or events. Additional factors include the risk that the expected benefits for the Company’s pure-play healthcare REIT strategy are not achieved, the ongoing costs to operate the Company on an internalized basis which, if higher than anticipated, could reduce the potential cost savings sought in the internalization transaction, and other factors, including those described under the section entitled Item 1A. “Risk Factors” of Part I of our 2020 Annual Report on Form 10-K with the SEC, copies of which are available at www.sec.gov. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Condensed Consolidated Balance Sheets (amounts in thousands, except share data)

Condensed Consolidated Quarterly (Unaudited) Statements of Comprehensive Income (Loss) (amounts in thousands, except share data and per share amounts)

Contacts

Investor Relations:
IR@silarealtytrust.com
Miles Callahan, Vice President of Capital Markets and Investor Relations

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