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Melcor REIT has NOI of $11.96-million in Q1

2020-05-14 18:53 ET - News Release

Mr. Darin Rayburn reports

MELCOR REIT ANNOUNCES FIRST QUARTER 2020 RESULTS AND DECLARES MONTHLY DISTRIBUTION OF $0.03 PER TRUST UNIT

Melcor Real Estate Investment Trust has released its results for the first quarter ended March 31, 2020. Rental revenue was up 8 per cent, compared with the prior year. Net operating income increased 9 per cent over the prior year to $11.96-million. Adjusted cash from operations (ACFO) was up 7 per cent due to the 26-per-cent increase in cash flows from operations and the actual payment of tenant incentives and direct leasing costs, and the REIT continues to renew current tenants and attract new tenants to its properties.

Highlights:

  • Rental revenue was up 8 per cent over Q1 2019 at $19.29-million.
  • Net operating income (NOI) grew 9 per cent over Q1 2019 at $11.96-million.
  • ACFO increased 7 per cent to $4.97-million or 17 cents per unit in the quarter.
  • Occupancy remained stable over Q4 2019 at 88 per cent.
  • Distributions of 5.625 cents per trust unit were paid in January, February and March for an ACFO payout ratio of 99 per cent.

Darin Rayburn, president and chief executive officer of Melcor, commented: "I'm pleased to report on our first quarter 2020 results. Our results were enhanced by the acquisitions completed in 2019 and in particular the acquisition of Melcor Crossing in Grande Prairie in November, 2019. We now see the full quarter benefit of our larger portfolio, which contributed to 9-per-cent growth in NOI. Positive leasing momentum of the past few quarters contributed to a strong 86.7-per-cent retention rate and 24,147 square feet in new deals commencing to date, with a further 73,000 square feet committed for future occupancy. All in all, the quarter was proceeding as we had expected until March.

"In March, the COVID-19 global pandemic arrived in Western Canada. The REIT responded quickly, implementing a variety of measures to provide safe and clean work environments to keep our tenants and visitors to our properties safe while doing our part to slow the spread. We also initiated a series of intentional measure to conserve cash and place the REIT in a position to support our tenants through these unprecedented times.

"We do anticipate that the emergency measures enacted to contain COVID-19 and the resulting economic impact to many of our tenants will have negative repercussions on our future cash flow and net operating income. The extent and duration of the impact on our results cannot be accurately predicted at this time. What we do know is that we collected 79 per cent of April rent roll and 71 per cent of Mays rent roll. We continue to work with our tenants as partners so that we can all get through this together. We believe that continued solidarity and partnership with our tenants will provide them the best opportunity to endure the pandemic and be successful in the long term.

"In an effort to reduce costs and in response to lower activity at many of our properties, we have deferred and suspended, where appropriate, operating expenses, representing approximately 20 per cent of budgeted April expenditures. In addition, we have deferred discretionary capital spending of approximately $1.3-million planned for 2020, collectively providing near-term liquidity and reducing non-essential activities at our properties.

"We do not know if this disruption [will] be short term or if it will linger. Only time will tell. We continue to monitor the situation, make thoughtful decisions and take action to come through this together with our tenants.

"We are an ecosystem that relies on one another and we strive to make decisions that support our unitholders and our tenants for the long-term success of each and every one of us."

Q1 2020 highlights

Melcor's portfolio performance remained stable through the first three months of 2020, with continued leasing stability in spite of challenging markets. The REIT continued to pro-actively renew existing tenants and pursue new tenants, resulting in a healthy retention rate of 86.7 per cent at quarter-end and overall occupancy of 88.1 per cent.

Highlights of the REIT's performance in the first quarter include the following.

Financial highlights:

  • The 11-per-cent growth in the square footage of Melcor's portfolio via third party acquisitions in 2019 contributed to revenue growth of 8 per cent and net operating income growth of 9 per cent compared with Q1 2019.
  • Net income in the current and comparative periods was significantly impacted by non-cash fair value adjustments on Class B LP units due to changes in the REIT's unit price and fair value adjustments on investment properties due to changes in NOI/capitalization rates. Management believes funds from operations (FFO) is a better reflection of the REIT's true operating performance. FFO was $6.73-million or 23 cents per unit, compared with $6.53-million or 23 cents in Q1 2019.
  • ACFO was up 7 per cent from Q1 2019 at $4.97-million or 17 cents per unit, compared with $4.63-million or 16 cents per unit. Management believes that ACFO better reflects the REIT's cash position and therefore its ability to pay distributions.
  • As at March 31, 2020, the REIT had $1.89-million in cash and $10.11-million in additional capacity under its revolving credit facility.

Operating highlights:

  • Same-asset NOI was down 3 per cent, compared with Q1 2019, as the drag from the large tenant that vacated a downtown office building continues.
  • The REIT continued to execute on its pro-active leasing strategy to both retain existing and attract new tenants. It completed lease renewals representing 74,320 square feet (including holdovers) for a retention rate of 86.7 per cent at March 31, 2020. New leasing has been steady across the portfolio, with 24,147 square feet in new deals commencing to date in 2020 and an additional 74,000 square feet committed for future occupancy.

Creating unitholder value:

  • The REIT paid distributions of 5.625 cents per trust unit in January, February and March for a quarterly payout ratio of 99 per cent based on ACFO and 73 per cent based on FFO.
  • On April 1, 2019, the REIT commenced a normal course issuer bid (NCIB) that allows the REIT to purchase approximately 5 per cent of its issued and outstanding trust units for cancellation. Under this NCIB, the REIT purchased 76,768 units for $530,000 at a weighted average cost of $6.95 per unit or 70 per cent of book value. This NCIB plan expired on March 31, 2020.

Subsequent events:

  • On April 1, 2020, the REIT renewed the NCIB. It is entitled to purchase up to 655,792 trust units for cancellation, representing approximately 5 per cent of the REIT's issued and outstanding trust units. The REIT believes that its units have been trading in a price range that does not reflect the value of the units in relation to the REIT's current and future business prospects. The trust units may be repurchased up to a maximum daily limit of 3,207. The price that the REIT will pay for trust units repurchased under the plan will be the market price at the time of acquisition. The NCIB ends one year from commencement, on March 31, 2021. Subsequent to the quarter, the REIT purchased 49,905 units for $180,000 under the NCIB purchase plan, which commenced April 1, 2020. Following the expiration of the blackout on May 15, 2020, the REIT will suspend its purchases under the NCIB program in light of continued market volatility and in an effort to conserve cash.
  • Today, the board declared a distribution of three cents per trust unit, payable on June 15, 2020, to unitholders of record on May 29, 2020.

                                   FINANCIAL HIGHLIGHTS 
                    (in thousands of dollars, except per-unit amounts)

                                                                           Three months ended 
                                                               March 31, 2020  March 31, 2019
Non-standard key performance indicators (KPIs)
Net operating income (NOI)                                          $  11,964       $  11,012 
Same-asset NOI                                                         10,671          11,012
Funds from operations (FFO)                                             6,730           6,531
Adjusted funds from operations (AFFO)                                   4,862           4,617
Adjusted cash flow from operations (ACFO)                               4,966           4,631
Rental revenue                                                         19,292          17,944
Income before fair value adjustments                                    2,942           3,252
Fair value adjustment on investment properties                         (6,187)          1,159
Cash flows from operations                                              3,453           2,751
Distributions to unitholders                                            2,216           2,225
Distributions                                                       $    0.17       $    0.17
Per-unit metrics                                                                           
Net income                                                                                 
Basic                                                               $    6.39       $    0.19
Diluted                                                             $    0.08       $    0.19
FFO                                                                                        
Basic                                                               $    0.23       $    0.23
Diluted                                                             $    0.22       $    0.23
Payout ratio                                                              73%             73%
AFFO                                                                                       
Basic                                                               $    0.17       $    0.16
Payout ratio                                                             102%            103%
ACFO                                                                                   
Basic                                                               $    0.17       $    0.16
Payout ratio                                                              99%            102%

                       OPERATIONAL HIGHLIGHTS 

                                            March 31, 2020  Dec. 31, 2019

Number of properties                                    39             39
Gross leasable area (GLA) (sf)                   3,208,463      3,208,950
Occupancy (weighted by GLA)                          88.1%          88.0%
Retention (weighted by GLA)                          86.7%          59.6%
Weighted average remaining lease term (years)         4.35           4.37
Weighted average base rent (per sf)                 $16.69         $16.79

Management's discussion and analysis (MD&A) and financial statements

Information included in this news release is a summary of results. This news release should be read in conjunction with the REIT's Q1 2020 quarterly report to unitholders. The REIT's consolidated financial statements and MD&A for the three months ended March 31, 2020, can be found on the REIT's website or on SEDAR.

Conference call and webcast

Unitholders and interested parties are invited to join management on a conference call to be held Friday, May 15, 2020, at 11 a.m. ET (9 a.m. MT). Call 416-915-3239 in the Toronto area or toll-free 1-800-319-4610.

The call will also be webcast (listen only). A replay of the call will be available shortly after the call is concluded.

About Melcor Real Estate Investment Trust

Melcor is an unincorporated, open-ended real estate investment trust. The REIT owns, acquires, manages and leases quality retail, office and industrial income-generating properties in Western Canadian markets.

We seek Safe Harbor.

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