Melcor REIT announces second quarter 2017 results

EDMONTON, AB–(Marketwired – August 02, 2017) –

Highlights

• Overall portfolio performance remained steady in Q2-2017 and year to date
• Rental Revenue of $16.56 million in Q2-2017; $33.56 million year to date
• Net operating income of $10.57 million in Q2-2017; $21.31 million year to date
• Adjusted funds from operations (AFFO) of $5.22 million or $0.20 per unit in Q2-2017; $10.47 million or $0.41 per unit year to date
• Debt to Gross Book Value (GBV) ratio of 55%, well below our maximum threshold of 65%
• Distributions of $0.05625 per trust unit were paid in April, May and June for a payout ratio of 83%
• Andrew Melton was appointed as the REIT’s second President & Chief Executive Officer and Ralph Young was appointed Board Chair on April 15, 2017.

Melcor REIT (TSX: MR.UN) today announced results for the second quarter ended June 30, 2017. Rental revenue in the quarter and year to date periods remained steady over the prior year at $16.56 million and $33.56 million respectively. Net operating income also remained steady at $10.57 million and $21.31 million respectively. The net loss of $1.79 million in the quarter and $15.28 million year to date is a result of non-cash fair value adjustments on investment properties due to an increase in capitalization rates. Management believes Adjusted funds from operations (AFFO) is a better reflection of our true operating performance. AFFO grew 3% to $10.47 million ($0.41 per unit) to date in 2017.

Andrew Melton, President & CEO of Melcor REIT commented: “It is my pleasure to report on another successful quarter for the REIT. Our portfolio continues to perform steadily — no small feat given the economic and political uncertainty that we have faced over the past few years, particularly in Alberta. In spite of the uncertainty, we’ve continued to execute on our tried and true business strategy of taking care of our tenants and taking care of our buildings. By executing this strategy, our results have remained steady and stable.

We have a strong foundation for future growth and continue to seek out and pursue opportunities to add to our portfolio.

Ultimately, success can be measured in many ways, and I believe our consistent performance is a significant success. Full credit goes to our tremendous team.”

Q2-2017 Activity:

Our portfolio performance remained steady through the second quarter and first half of 2017. The stability and diversity of our portfolio with respect to both tenant profile and asset class position the REIT well for managing through economic cycles. We are focused on the real estate fundamentals of asset enhancement and property management while conservatively managing our debt. At 83%, our payout ratio is a strong indicator of our overall health and our ability to sustain distributions at current rates. In Q2-2017, we adopted REALpac’s new guidance on AFFO retroactive to January 1, 2017 and for the comparative period, which resulted in a change from our previously reported payout ratios. We believe this is an improved disclosure and does not represent a fundamental change in our underlying results or strategy.

Highlights of our performance in the second quarter include:

• Stable same-asset property income and occupancy in all asset classes and operating regions, with 92.7% occupancy at June 30, 2017. Same-asset NOI was down 1%.
• The net loss of $15.28 million year to date is a result of the non-cash fair value losses on investment properties recorded in the period due to an increase in capitalization rates. Management believes adjusted funds from operations (AFFO) is a better reflection of our true operating performance.
• AFFO was relatively stable at $5.22 million in Q2-2017 and $10.47 million year to date.
• We continued to execute on our proactive leasing strategy to both retain existing and attract new tenants. Through the first half of 2017 we completed 162,288 sf in new and renewed leasing (including holdovers) with a retention rate of 78.6% year to date.
• We responded to 99% of services requests within 30 minutes via our signature care program in Q2-2017. We view this metric as an important indication of our commitment to ongoing client care, which contributes to tenant satisfaction and ultimately retention.
• On April 27, 2017 we completed the sale of LC Industrial, a 67,610 sf industrial building in Lethbridge, Alberta for $7.76 million (including transaction costs). This divestiture represents the REIT’s first asset disposal and provides the REIT with additional capacity to recycle capital in future asset acquisitions. Rental revenue related to LC Industrial in the three and six-months ended June 30, 2017 was $0.05 million and $0.20 million (2016 – $0.15 million and $0.32 million).
• We took advantage of favourable lending conditions and early re-financed $13.95 million in mortgages at an average interest rate of 3.65% both during and subsequent to the quarter. Early re-financing was a strategy employed to mitigate and re-balance our risk in 2018 when 21% of our mortgages mature.
• We continue to experience negative market pressure on Edmonton downtown office space as approximately 1.8 million sf in new inventory comes online. Edmonton downtown office spaces makes up 12% of the REIT’s GLA.
• We paid distributions of $0.05625 per trust unit in April, May and June for a quarterly payout ratio of 83%.
• As at June 30, 2017 we have $2.17 million in cash. The REIT also has additional capacity under our revolving credit facility. Our working capital position remains healthy and we continue to collect receivables in a timely manner to ensure near-term liquidity.

Selected Highlights

(1) Calculated as the sum of trust units and Class B LP Units at their book value. Class B LP Units are presented as a financial liability in the condensed interim consolidated financial statements.
(2) 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 and convertible debenture, excluding unamortized discount and transaction costs.
(3) Excluding convertible debentures, Debt to GBV ratio is 49% (December 31, 2016 – 50%).
(4) Calculated as the sum of FFO and finance costs; divided by finance costs, excluding distributions on Class B LP Units and fair value adjustments on derivative financial instruments.
(5) 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.
(6) We adopted REALpac’s new guidance on AFFO in Q2-2017 retroactive to January 1, 2017 and for the comparative periods. See Adjusted Funds from Operations on page 10 for detail.