Melcor Real Estate Investment Trust ("Melcor REIT" or the "REIT")
(TSX: MR.UN) today announced results for the first quarter ended
March 31, 2024. The first quarter Management Discussion &
Analysis and Condensed Interim Financial Statements are available
on our website (www.MelcorREIT.ca) under Financial Reports, or on
SEDAR+ (www.sedarplus.ca)
Andrew Melton, CEO of Melcor REIT commented: "We are pleased to
report stable first quarter results despite challenging market
conditions. Stable results are the result of first-class service
provided by our property management group and consistent leasing
efforts by our leasing team.
"In the first quarter of 2024, we continue to navigate headwinds
arising from rising costs due to inflation and elevated interest
rates. Certain asset classes have begun to exhibit modest
improvements; however, challenges still exist. Despite these
ongoing uncertainties, we continue to demonstrate resilience and
adaptability, and remain focused on tenant retention and actively
leasing vacant space.
"As part of a strategic decision to focus on our Alberta markets
and debt repayment we have classified four properties as held for
sale, including three retail properties and one office property in
Saskatchewan and British Columbia. Net cash from the sale of these
assets is expected to be used to pay down the revolving credit
facility and reducing our overall debt. On April 16, 2024, we
entered an unconditional sale of one of these assets for gross
proceeds of $7.80 million which is expected to close on May 10,
2024. Net proceeds from this sale will be used to reduce debt."
On February 22, 2024, the Board of Trustees of Melcor REIT
announced the establishment of an Independent Committee (the
"Independent Committee") to oversee a broad-based strategic review
with a focus on unlocking unitholder value. The Independent
Committee has retained BMO Capital Markets as financial advisor and
DLA Piper (Canada) LLP as legal counsel to evaluate a broad range
of strategic alternatives to maximize unitholder value. The
Independent Committee is chaired by Richard Kirby, and also
includes Bernie Kollman and Barry James as committee members. We
will continue to provide updates to the market as they become
available.
FINANCIAL HIGHLIGHTS:Financial highlights of
our performance are summarized below.
First quarter:
- Revenue was steady at $18.91 million (Q1-2023: $18.99
million)
- NOI was up 1.2% at $11.66 million (Q1-2023: $11.52
million)
- FFO was down 10.2% to $5.40 million or $0.19 per unit (Q1-2023:
$6.01 million or $0.21 per unit)
- ACFO was down 7.9% at $3.48 million or $0.12 per unit (Q1-2023:
$3.78 million or $0.13 per unit) for a quarterly payout ratio of
33.5% based on ACFO (Q3-2022: 92.4%)
As at March 31, 2024 we had $3.86 million in cash and $8.45
million in undrawn liquidity under our revolving credit facility.
We have six mortgages up for renewal in 2024 for a combined total
of $43.91 million. The REIT has a $50.00 million revolving credit
facility, including a $5.00 million swing line sub-facility
maturing June 1, 2024. Subsequent to quarter end, we received
confirmation from our lenders that they have issued credit approval
for the extension of the credit facility subject to entering into
an amended credit agreement and related documents. The REIT
continues to monitor its secured debts in order to identify
opportunities and risks, and proactively engages with lenders in
regard to upcoming maturities.
Management believes FFO best reflects our true operating
performance and ACFO best reflects our cash flow and therefore our
ability to pay distributions. Net income in the current and
comparative period is significantly impacted by non-cash fair value
adjustments and thus not a meaningful metric to assess operating
performance.
Funds from operations and adjusted funds from operations were
both was down 8.4% over Q1-2023. Significant factors include an
increase of 30.9% in general and administrative expenditures
primarily due to additional costs related to the establishment of
the Independent Committee and the increase on mortgage payable and
revolving credit facilities of 10.3% related to rising interest
rates.
Rental revenue has remained stable in the quarter compared to
Q1-2023, with net rental income decreasing 0.6% over Q1-2023, due
to swings in amortization (non-cash) offset by an increase in base
rent. We saw a 1.2% increase in NOI in the quarter. Our same-asset
NOI calculations, which normalize out assets sold or classified as
held for sale, is up 0.9% over Q1-2023.
We remain focused on navigating the challenges associated with
inflation, such as rising operating costs and leasing costs and
higher interest costs as mortgages come up for renewal in a higher
interest rate environment. We expect to see continuing pressure on
operating cash flow resulting from reductions in office lease
rates, higher tenant incentives, increasing operating costs and
continuing higher financing costs.
OPERATIONAL HIGHLIGHTS:We are pleased with the
volume of new leasing activity across our portfolio. Leasing in the
quarter includes 222,352 sf of new and renewed leases (including
holdovers) and we have retained 97.9% of expiring leases. Future
leasing is promising, with commitments on an additional 47,116 sf
in new deals which would bring committed occupancy up to 88.2%.
Retail properties continue to anchor our portfolio and have seen
slight improvements in WABR over Q1-2023, with occupancy remaining
strong at 93.4%. Retail represents 44.3% of our total GLA as at
March 31, 2024 and 60.2% of net rental income for the three
months ended March 31, 2024. Our office properties continue to
navigate downward pressure on rental rates and an increase in
supply in some of our key geographic areas, specifically our
Edmonton office properties which have seen an increase in new
development of office space in recent years.
DISTRIBUTIONS:In January 2024 we declared a
distribution of $0.04 per unit. On February 22, 2024, we announced
the suspension of the monthly distribution concurrent with the
commencement of a strategic review. In the comparative quarter
distributions were paid at a rate of $0.04 per unit per month for
the whole quarter.
The quarterly payout ratio was 33.5% (Q1-2023: 95.4%) based on
ACFO and 22% (Q1-2023: 58.1%) based on FFO. As noted above,
distributions were suspended in February 2024 impacting the payout
ratios in the current period. Distributions to unit holders and on
Class B LP Units are recorded in the period they are declared to
unitholders.
The REIT intends to make distributions that are equal to or
greater than the taxable income that would otherwise be reported by
the REIT.
KPI's:
|
|
Three months ended March 31 |
|
|
($000's) |
2024 |
2023 |
r% |
|
NOI1 |
11,661 |
11,522 |
1.2 |
|
Same-asset NOI1 |
10,923 |
10,824 |
0.9 |
|
FFO1 |
5,396 |
6,008 |
(10.2) |
|
AFFO1 |
3,352 |
3,659 |
(8.4) |
|
ACFO1 |
3,477 |
3,776 |
(7.9) |
|
Rental revenue |
18,905 |
18,990 |
(0.4) |
|
Income before fair value adjustments1 |
3,792 |
3,015 |
25.8 |
|
Fair value adjustment on investment properties3 |
(9,056) |
(1,586) |
nm |
|
Cash flows from operations |
4,848 |
1,882 |
157.6 |
|
Distributions paid to unitholders |
519 |
1,556 |
(66.6) |
|
Distributions paid2 |
$0.04 |
$0.12 |
(66.7) |
- Non-GAAP financial measure. Refer to
the Non-GAAP and Non-Standard Measures section for further
information.
- Distributions for 2024 were $0.04 per unit in the month of
January 2024, and were suspended in February 2024. Distributions in
the comparative period were paid out at $0.04 per unit per
month.
- The abbreviation nm is shorthand for not meaningful and may be
used where appropriate.
Operational Highlights:
|
|
March 31, 2024 |
December 31, 2023 |
r% |
|
Number of properties |
38 |
38 |
— |
|
GLA (sf) |
3,150,646 |
3,150,646 |
— |
|
Occupancy (weighted by GLA) |
87.7% |
87.6% |
0.1 |
|
Retention (weighted by GLA) |
97.9% |
87.9% |
11.4 |
|
Weighted average remaining lease term (years) |
4.57 |
4.31 |
6.0 |
|
Weighted average base rent (per sf) |
$17.01 |
$17.06 |
(0.3) |
Per Unit Metrics:
|
|
Three months ended March 31 |
|
|
|
2024 |
2023 |
r% |
|
Per Unit Metrics |
|
|
|
|
Net income (loss) |
|
|
|
|
Basic |
$0.80 |
$0.28 |
|
|
Diluted |
($0.14) |
$0.09 |
|
|
Weighted average number of units for net income (loss)
(000s):1 |
|
|
|
|
Basic |
12,963 |
12,963 |
— |
|
Diluted |
29,088 |
29,088 |
— |
|
FFO |
|
|
|
|
Basic2 |
$0.19 |
$0.21 |
|
|
Diluted2 |
$0.18 |
$0.20 |
|
|
Payout ratio2 |
21.6% |
58.0% |
|
|
AFFO |
|
|
|
|
Basic 2 |
$0.12 |
$0.13 |
|
|
Payout ratio2 |
34.7% |
95.0% |
|
|
ACFO |
|
|
|
|
Basic2 |
$0.12 |
$0.13 |
|
|
Payout ratio2 |
33.5% |
92.4% |
|
|
Weighted average number of units for FFO, AFFO and ACFO
(000s):3 |
|
|
|
|
Basic |
29,088 |
29,088 |
— |
|
Diluted |
34,257 |
34,257 |
— |
- For the purposes of calculating per
unit net income the basic weighted average number of units includes
Trust Units and the diluted weighted average number of units
includes Class B LP Units and convertible debentures, to the extent
that their impact is dilutive.
- Non-GAAP ratio. Refer to the Non-GAAP and Non-Standard Measures
section for further information.
- For the purposes of calculating per unit FFO, AFFO and ACFO the
basic weighted average number of units includes Trust Units and
Class B LP Units.
Balance Sheet Highlights:
|
|
March 31, 2024 |
December 31, 2023 |
r% |
|
Total assets ($000s) |
693,318 |
700,998 |
(1.1) |
|
Equity at historical cost ($000s)1 |
288,196 |
288,196 |
— |
|
Indebtedness ($000s)2 |
417,074 |
420,339 |
(0.8) |
|
Weighted average interest rate on debt |
4.51% |
4.52% |
(0.2) |
|
Debt to GBV, excluding convertible debentures (maximum threshold -
60%)3 |
49.7% |
50.0% |
— |
|
Debt to GBV (maximum threshold - 65%)3 |
55.8% |
56.0% |
— |
|
Finance costs coverage ratio4 |
2.05 |
2.21 |
(7.2) |
|
Debt service coverage ratio5 |
1.81 |
1.93 |
(6.2) |
- Calculated as the sum of trust units and Class B LP Units at
their historical cost value. In accordance with IFRS the Class B LP
Units are presented as a financial liability in the consolidated
financial statements. Please refer to the MD&A for calculation
of Equity at historical cost.
- Calculated as the sum of total amount drawn on revolving credit
facility, mortgages payable, Class C LP Units and convertible
debentures, excluding unamortized discount and transaction costs.
Please refer to page 11 for calculation of Indebtedness.
- Debt to GBV is a Non-GAAP ratio. Refer to the Non-GAAP and
Non-Standard Measures section in the MD&A for further
information.
- Non-GAAP financial ratio. Calculated as the sum of FFO and
finance costs; divided by finance costs, excluding distributions on
Class B LP Units and fair value adjustment on derivative
instruments. This metric is not calculated for purposes of covenant
compliance on any of our debt facilities. Please refer to Non-GAAP
and Non-Standard Measures section in the MD&A for further
information.
- Non-GAAP financial ratio. Calculated
as FFO; divided by sum of contractual principal repayments on
mortgages payable and distributions of Class C LP Units, excluding
amortization of fair value adjustment on Class C LP Units. This
metric is not calculated for purposes of covenant compliance on any
of our debt facilities. Please refer to Non-GAAP and Non-Standard
Measures section in the MD&A for further information.
MD&A and Financial StatementsInformation
included in this press release is a summary of results. This press
release should be read in conjunction with the REIT's Q1-2024
quarterly report to unitholders. The REIT’s consolidated financial
statements and management’s discussion and analysis for the period
ended March 31, 2024 can be found on the REIT’s website at
www.MelcorREIT.ca or on SEDAR+ (www.sedarplus.ca).
Conference Call & WebcastUnitholders and
interested parties are invited to join management on a conference
call to be held May 9, 2024, at 11:00 AM ET (9:00 AM MT).
Conference Call Details:
- Canada/USA Toll Free: 1-844-763-8274
- International Toll: 1-647-484-8814
The call will also be webcast (listen only) at
https://www.gowebcasting.com/13231. A replay of the call will be
available at the same URL shortly after the call is concluded.
About Melcor REITMelcor REIT is an
unincorporated, open-ended real estate investment trust. Melcor
REIT owns, acquires, manages and leases quality retail, office and
industrial income-generating properties in western Canadian
markets. Its portfolio is currently made up of interests in 38
properties representing approximately 3.15 million square feet of
gross leasable area located across Alberta and in Regina,
Saskatchewan; and Kelowna, British Columbia. For more information,
please visit www.MelcorREIT.ca.
Non-GAAP and Non-standard MeasuresNOI, FFO,
AFFO and ACFO are key measures of performance used by real estate
operating companies; however, they are not defined by International
Financial Reporting Standards (IFRS), do not have standard meanings
and may not be comparable with other industries or income trusts.
These non-IFRS measures are defined and discussed in the REIT’s
MD&A for the quarter ended March 31, 2024, which is
available on SEDAR+ at www.sedarplus.ca.
Finance costs coverage ratio: Finance costs
coverage ratio is a non-GAAP ratio and is calculated as FFO plus
finance costs for the period divided by finance costs expensed
during the period excluding distributions on Class B LP Units and
fair value adjustment on derivative instruments.
Debt service coverage ratio: Debt service
coverage ratio is a non-GAAP ratio and is calculated as FFO for the
period divided by principal repayments on mortgages payable and
Class C LP Units made during the period.
Debt to Gross Book Value: Debt to GBV is a
non-GAAP ratio and is calculated as the sum of total amount drawn
on revolving credit facility, mortgages payable, Class C LP Units,
excluding unamortized fair value adjustment on Class C LP Units,
liability held for sale (as applicable) and convertible debenture,
excluding unamortized discount and transaction costs divided by
GBV. GBV is calculated as the total assets acquired in the Initial
Properties, subsequent asset purchases and development costs less
dispositions.
Income before fair value adjustment and taxes:
Income before fair value adjustment and income taxes is a non-GAAP
financial measure and is calculated as net income excluding fair
value adjustments for Class B LP Units, investment properties and
derivative instruments.
|
|
Three months ended March 31 |
|
|
($000s) |
2024 |
2023 |
r% |
|
Net income for the period |
10,352 |
3,656 |
|
|
Fair value adjustment on Class B LP Units |
(14,996) |
(2,903) |
|
|
Fair value adjustment on investment properties |
9,056 |
1,586 |
|
|
Fair value adjustment on derivative instruments |
(620) |
676 |
|
|
Income before fair value adjustment and taxes |
3,792 |
3,015 |
25.8 |
Fair value of investment properties: Fair value
of investment properties in the Property Profile and Regional
Analysis sections of the MD&A is a supplementary financial
measure and is calculated as the sum of the balance sheet balances
for investment properties and other assets (TIs and SLR).
NOI Reconciliation:
|
|
Three months ended March 31 |
|
|
($000s) |
2024 |
2023 |
r% |
|
Net income for the period |
10,352 |
3,656 |
|
|
Net finance costs |
5,139 |
7,520 |
|
|
Fair value adjustment on Class B LP Units |
(14,996) |
(2,903) |
|
|
Fair value adjustment on investment properties |
9,056 |
1,586 |
|
|
General and administrative expenses |
1,020 |
779 |
|
|
Amortization of tenant incentives |
959 |
1,058 |
|
|
Straight-line rent adjustment |
131 |
(174) |
|
|
NOI |
11,661 |
11,522 |
1.2 |
Same-asset Reconciliation:
|
|
Three months ended March 31 |
|
|
($000s) |
2024 |
2023 |
r% |
|
Same-asset NOI |
10,923 |
10,824 |
0.9 |
|
Disposals / Assets held for sale |
738 |
698 |
|
|
NOI1 |
11,661 |
11,522 |
1.2 |
|
Amortization of tenant incentives |
(959) |
(1,058) |
|
|
SLR adjustment |
(131) |
174 |
|
|
Net rental income |
10,571 |
10,638 |
(0.6) |
FFO & AFFO Reconciliation:
|
|
Three months ended March 31 |
|
|
($000s, except per unit amounts) |
2024 |
2023 |
r% |
|
Net income for the period |
10,352 |
3,656 |
|
|
Add / (deduct) |
|
|
|
|
Fair value adjustment on investment properties |
9,056 |
1,586 |
|
|
Fair value adjustment on Class B LP Units |
(14,996) |
(2,903) |
|
|
Amortization of tenant incentives |
959 |
1,058 |
|
|
Distributions on Class B LP Units |
645 |
1,935 |
|
|
Fair value adjustment on derivative instruments |
(620) |
676 |
|
|
FFO1 |
5,396 |
6,008 |
(10.2) |
|
Deduct |
|
|
|
|
Straight-line rent adjustments |
131 |
(174) |
|
|
Normalized capital expenditures |
(750) |
(750) |
|
|
Normalized tenant incentives and leasing commissions |
(1,425) |
(1,425) |
|
|
AFFO |
3,352 |
3,659 |
(8.4) |
|
FFO/Unit |
$0.19 |
$0.21 |
|
|
AFFO/Unit |
$0.12 |
$0.13 |
|
|
Weighted average number of units (000s):1 |
29,088 |
29,088 |
— |
- For the purposes of calculating per
unit FFO and AFFO, the basic weighted average number of units
includes Trust Units and Class B LP Units.
ACFO Reconciliation:
|
|
Three months ended March 31 |
|
|
($000s, except per unit amounts) |
2024 |
2023 |
r% |
|
Cash flows from operations |
4,848 |
1,882 |
157.6 |
|
Distributions on Class B LP Units |
645 |
1,935 |
|
|
Actual payment of tenant incentives and direct leasing costs |
906 |
1,955 |
|
|
Changes in operating assets and liabilities |
(467) |
532 |
|
|
Amortization of deferred financing fees |
(280) |
(353) |
|
|
Normalized capital expenditures |
(750) |
(750) |
|
|
Normalized tenant incentives and leasing commissions |
(1,425) |
(1,425) |
|
|
ACFO |
3,477 |
3,776 |
(7.9) |
|
|
|
|
|
|
ACFO/Unit |
$0.12 |
$0.13 |
|
|
|
|
|
|
|
Weighted average number of units (000s)1 |
29,088 |
29,088 |
— |
- The diluted weighted
average number of units includes Trust Units, Class B LP Units and
convertible debentures.
Forward-looking Statements:This press release
may contain forward-looking information within the meaning of
applicable securities legislation, which reflects the REIT's
current expectations regarding future events. Forward-looking
information is based on a number of assumptions and is subject to a
number of risks and uncertainties, many of which are beyond the
REIT's control, that could cause actual results and events to
differ materially from those that are disclosed in or implied by
such forward-looking information. Such risks and uncertainties
include, but are not limited to, general and local economic and
business conditions; the financial condition of tenants; the REIT’s
ability to refinance maturing debt; leasing risks, including those
associated with the ability to lease vacant space; and interest
rate fluctuations. The REIT’s objectives and forward-looking
statements are based on certain assumptions, including that the
general economy remains stable, interest rates remain stable,
conditions within the real estate market remain consistent,
competition for acquisitions remains consistent with the current
climate and that the capital markets continue to provide ready
access to equity and/or debt. All forward-looking information in
this press release speaks as of the date of this press release. The
REIT does not undertake to update any such forward-looking
information whether as a result of new information, future events
or otherwise. Additional information about these assumptions and
risks and uncertainties is contained in the REIT’s filings with
securities regulators.
Contact Information:Tel: 1.855.673.6931 Em:
ir@melcorREIT.ca
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