Melcor REIT announces first quarter 2022 results

Highlights

Highlights (compared to Q1-2021)

First Quarter Results: Results, excluding Early Termination event1:
• Revenue was down 3% at $18.97 million. • Revenue was up 3%.
• Net operating income (NOI) was down 6% to $11.86 million. • NOI was up 2%.
• Funds from operation (FFO) was down 8% to $6.53 million or $0.22 per unit. • FFO was up 7% or $0.43 million.
• Adjusted cash from operations (ACFO) was stable at $5.77 million or $0.20 per unit.
1. Early Termination event: In the comparative quarter, we received $1.00 million for the early lease termination of a fast food chain occupying 6,384 sf in Leduc Common.
• Occupancy was up slightly at 87.4%.
• Distributions of $0.04 per unit were paid in January through March for a ACFO payout ratio of 61%.

Melcor REIT (TSX: MR.UN) today announced results for the first quarter ended March 31, 2022. Rental revenue was down 3% at $18.97 million and NOI was down 6% to $11.86 million, primarily due to the Early Termination event contributing $1.00 million in other revenue in Q1-2021. Excluding this event, revenue was up 3% and NOI was up 2%. ACFO was stable at $5.77 million or $0.20 per unit. Occupancy was up slightly over year-end and we retained 86.1% of expiring leases year-to-date. Leasing activity has been positive with 179,269 sf of new and renewed leasing (including holdovers) signed in the quarter.

Andrew Melton, CEO of Melcor REIT commented: “The REIT is pleased to report stable results for the first quarter of 2022. As work from home orders have been lifted, many people, including Melcor Developments staff, have returned to their office settings in the quarter. We are pleased with the volume of new leasing activity across our portfolio. We signed 179,269 sf of new and renewed leasing (including holdovers) and retained 86.1% of expiring leases year-to-date. Future leasing is promising, with commitment on an additional 117,527 sf of future renewals and 74,000 sf in new deals.

Our reported revenue and NOI are slightly skewed due to Early Termination event fees of $1.00 million received in the comparable quarter. Excluding this event, portfolio performance was stable overall.

In the first quarter we announced the addition of two major tenants comprised of 40,000 sf in two properties. Habitat for Humanity ReStore in Red Deer, AB is now open and we will welcome Innovate Edmonton to 10117 Jasper Avenue in the fall. Sustainable development and green initiatives are common considerations for tenants when choosing new space. As participants in the Edmonton Corporate Climate Leaders Program, we are in the process of setting targets for climate action for 2025 and 2035. We expect to solidify these targets and communicate them to stakeholders.

On April 11, 2022, we welcomed Randy Ferguson to the role of Senior Vice-President, Investment Properties. Randy brings over 40 years of real estate experience to our team and will be responsible for the REIT’s entire portfolio of 39 income-producing properties in addition to Melcor’s portfolio.

Our distributions increased by 14% to $0.04 per unit compared to $0.035 per unit in Q1-2021. Subsequent to quarter-end, the Board of Trustees declared distributions for April and May 2022, unchanged from previous months.”

FIRST QUARTER HIGHLIGHTS:

Our portfolio performance remained relatively stable in the first quarter; NOI decreased 6% consistent with net rental income, which decreased 5%, primarily due to the Early Termination event in Q1-2021. Excluding this event, net rental income was up 3% and NOI was up 2%.

We are proactively working to renew existing tenants, resulting in a healthy retention rate of 86.1% at quarter end. We continue to pursue new tenant opportunities and commenced 41,706 sf in new leases in Q1-2022. Occupancy is up slightly at 87.4% compared to year-end. Weighted average base rent went down in the retail and office classes as a result of the competitive lease environment.

The factors that contributed most significantly to Q1-2022 results compared to the prior year are as follows:

  • Early Termination event: In the comparative quarter, we received $1.00 million for the early lease termination of a fast food chain occupying 6,384 sf in Leduc Common. This fee was included in other revenue in Q1-2021, and impacts the comparative results.
  • Non-cash Fair Value Adjustments: Non-cash fair value adjustments on Class B LP Units and investment properties often cause dramatic swings in results. Class B Units are valued at market value, thus a change in unit price has a counter-intuitive impact on net income, as an increase in unit value decreases net income. The 6% increase in the trading price of the REIT’s units compared to December 31, 2021 resulted in a $7.10 million loss on the valuation of our Class B LP Units. This event had a material impact to net income in both the current and prior periods, making comparison less meaningful. This is why management considers FFO and ACFO better measures of our performance.
  • Distribution Increase: Our monthly distribution increased by 14% to $0.04 per unit compared to Q1-2021.

FINANCIAL HIGHLIGHTS

Financial highlights of our performance in the first quarter include:

  • Revenue was down 3% at $18.97 million. Excluding the Early Termination event, revenue was up 3%.
  • NOI was down 6% to $11.86 million. Excluding the Early Termination event, NOI was up 2%.
  • FFO was down 8% to $6.53 million or $0.22 per unit (Q1-2021: $7.10 million or $0.24 per unit). Excluding the Early Termination event, FFO was up 7% or $0.43 million. Management believes FFO best reflects our true operating performance.
  • ACFO was stable at $5.77 million or $0.20 per unit in Q1-2022 (Q1-2021 – $5.75 million or $0.20 per unit). Management believes that ACFO best reflects our cash flow and therefore our ability to pay distributions. The quarterly payout ratio was 61% based on ACFO.
  • Net income in the current and comparative period is significantly impacted by the Non-cash Fair Value Adjustments described above.
  • We re-financed one mortgage during the quarter at an interest rate of 3.70% for proceeds of $7.75 million (net $1.12 million).
  • As at March 31, 2022 we had $7.87 million in cash and $35.00 million in undrawn liquidity under our revolving credit facility.

OPERATING HIGHLIGHTS

We are pleased with the volume of new leasing activity across our portfolio. We signed 179,269 sf of new and renewed leasing (including holdovers) and retained 86.1% of expiring leases year-to-date. Future leasing is promising, with commitment on an additional 117,527 sf of future renewals and 74,000 sf in new deals.

DISTRIBUTIONS

Our monthly distributions remained stable over year-end at $0.04 and increased 14% over Q1-2021. The quarterly payout ratio was 61% based on ACFO and 53% based on FFO (Q1-2021: distribution of $0.035 per month; 53% ACFO and 43% FFO).

SUBSEQUENT EVENT

Subsequent to the quarter, we declared the following distribution:

Month Record Date Distribution Date Distribution Amount
April 2022 April 29, 2022 May 16, 2022 $0.04 per Unit
May 2022 May 31, 2022 June 15, 2022 $0.04 per Unit

Contact Information:

Investor Relations
Nicole Forsythe
Director, Corporate Communications
Tel: 1.855.673.6931
ir@melcorREIT.ca

Information note:

Please note that the numerical information stated in press releases are outlined as-at the date of the press release.

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