Melcor REIT announces Q4 and 2020 annual results
March 04 2021 - 5:26PM
Annual Highlights
- Rental revenue of $74.57 million for
growth of 5% over 2019.
- Net rental income of $43.33 million
for growth of 2% over 2019.
- Adjusted cash flow from operations
(ACFO) remained stable over 2019 at $18.58 million.
- ACFO per unit decreased by 3% over
2019 at $0.64 per unit.
- Debt to Gross Book Value (GBV) ratio
of 50%. Debt to GBV ratio of 59% including convertible debentures,
below maximum threshold of 65%.
- Distributions of $0.44 per unit paid
out ($0.05625 per unit for the months of January - March and $0.03
per unit for the months of April - December).
- ACFO payout ratio of 69% (FFO: 51%)
compared to 102% (FFO: 74%) in 2019.
- Q1-2021 distributions have been set at
$0.035, a 17% increase.
Quarterly Highlights
- Rental revenue of $18.74 million for
an increase of 3% over Q4-2019.
- Net rental income of $11.12 million,
for an increase of 4% over Q4-2019.
- ACFO of $5.28 million or $0.18 per
unit for an increase of 22% over Q4-2019.
Melcor REIT (TSX: MR.UN) today announced results
for the fourth quarter and year ended December 31, 2020.
Rental revenue grew 5% to $74.57 million compared to 2019. The
growth was driven by third-party acquisitions completed in 2019:
Melcor Crossing and Staples Centre which contributed revenues of
$8.15 million during 2020. Adjusted cash flow from operations
(ACFO) was consistent over 2019 at $18.58 million with a decrease
in ACFO per unit of 3% over the prior year at $0.64. ACFO better
reflects our cash position and therefore our ability to pay
distributions by excluding accretion expense, which is a non-cash
item.
Darin Rayburn, CEO of Melcor REIT commented: "2020
interrupted our regularly scheduled programming. In an effort to
conserve cash to be in the best position to support our tenants
through the uncertain world that COVID-19 presented, we focused on
our goal of keeping our balance sheet strong and helping our
tenants survive. We believe that this focus was in the best
interest of all stakeholders, including our unitholders. While it
was a difficult year, the REIT operations team demonstrated they
were definitely up for the challenge. Their resiliency, commitment
and bravery in the face of unending change has been
commendable.
We continued to focus on leasing and building
relationships with our tenants – the very heart of the Melcor REIT.
Despite COVID, our tenant retention rate was a very healthy 83% and
we leased 87,000 sf to new tenants. Between new leases and renewals
we leased 56% more space (based on gross leasable area) that we did
in 2019.
No one could have predicted how 2020 would play
out. On behalf of the board of Trustees and all Unitholders, I am
incredibly grateful to the REIT team responsible for building even
stronger relationships with tenants, keeping COVID cases contained
(the REIT received fewer than 10 notifications of possible
infections at tenant sites), and proving that we could survive a
year like 2020.
We are also grateful to our Unitholders for their
continued support through this tumultuous year. We are committed to
doing everything possible to protect your investment for the long
term."
2020 Highlights:
We are pleased with the performance of our
portfolio throughout the challenges of 2020, where the COVID-19
pandemic complicated our already challenged markets. We remain
proactive in renewing existing tenants and achieved a healthy
retention rate of 82.8% for the year. In spite of the challenging
market, interest in new leasing continued and we leased 87,189 sf
to new tenants. Occupancy remained stable at 87.6%.
As described in the Significant Event - COVID-19
section of this MD&A, COVID-19 had significant impacts on 2020
results as follows:
- Our portfolio was
revalued, resulting in fair value losses of $62.75 million.
- We recorded bad
debt expense of $1.04 million and forgave $0.71 million in rent on
a net basis related to the CECRA program.
- We recognized
$53.05 million in fair value gains on the valuation of our Class B
LP Units due to the 41% decrease in unit value compared to December
31, 2019.
FINANCIAL HIGHLIGHTS
- Third party
acquisitions completed in 2019 contributed to portfolio growth of
12% based on sf, and to revenue growth of 3% in the quarter and 5%
for the year. As a result of these acquisitions, NOI also had
growth of 6% for the quarter and 3% for the year. The growth in our
portfolio was offset by the negative impacts of COVID-19 described
above and lower same-asset revenue on account of lower lease rates
and higher average vacancy.
- Net income in the
current and comparative periods is significantly impacted by fair
value adjustments on investment properties due to changes in
NOI/capitalization rates and by non-cash fair value adjustments on
Class B LP Units due to changes in the REIT's unit price.
Management believes funds from operations (FFO) is a better
reflection of our true operating performance. FFO was $25.25
million or $0.86 per unit (basic), down 1% from 2019 as a direct
result of lower same-asset NOI.
- Adjusted cash from
operations (ACFO) was $18.58 million or $0.64 per unit (2019 -
$18.61 million or $0.66 per unit). Management believes that ACFO
best reflects our cash position and therefore our ability to pay
distributions. The REIT reduced its monthly distribution from April
- December 2020 in anticipation of lower ACFO. We subsequently
increased the distributions set for Q1-2021 by 17% to $0.035 per
unit per month.
- As at
December 31, 2020 we had $3.74 million in cash and $25.00
million in additional capacity under our revolving credit
facility.
OPERATING HIGHLIGHTS
- We continued to
execute on our proactive leasing strategy to both retain existing
and attract new tenants. We completed lease renewals representing
258,661 sf (including holdovers) for a retention rate of 82.8% at
December 31, 2020. New leasing has been steady across the
portfolio with 87,189 sf in new deals commencing in 2020 and an
additional 68,438 sf in committed leasing for future
occupancy.
- Same-asset NOI was
up 3% in the quarter due to timing of operating costs as well as
lower non-recoverable costs. Full year same-asset NOI was down 6%
over 2019 due to the drag from the large tenant that vacated a
downtown Edmonton office building on October 1, 2019, provisions
for bad debts and write-offs related to the CECRA program as well
as charges related to lease restructuring.
CREATING UNITHOLDER VALUE
- In 2020 we paid
monthly distributions of $0.05625 per trust unit for the months of
January to March and $0.03 per trust unit for the months of April
to December for a FFO payout ratio of 51% (2019 - 74%) and an ACFO
payout ratio of 69% (2019 - 102%).
- On April 1, 2020 we
commenced a new NCIB. We are entitled to purchase up to 655,792
trust units for cancellation, representing approximately 5% of the
REIT's issued and outstanding trust units. The maximum daily
purchase limit is 3,207 units, purchased at market price. Under
this NCIB, we purchased 59,526 units for $0.21 million at a
weighted average cost of $3.50 per unit or 36% of book value.
Including units purchased under the prior NCIB, we purchased a
total of 82,790 units for $0.34 million in 2020. The NCIB ends on
March 31, 2021.
- We suspended
purchases under the NCIB and cancelled our ASPP on May 15, 2020 as
part of our cash conservation program (re: COVID-19). We do intend
to continue purchases under the NCIB when our current trading
blackout is lifted. We also intend to apply for a new NCIB to
continue the program.
SUBSEQUENT EVENTS
- On January 14, 2021
we declared a distribution of $0.035 per trust unit for the months
of January, February and March 2021. The distribution represents a
17% increase in the REIT's distribution in response to 2020 results
and our operating and cash flow outlook for 2021.
- The REIT's Board
announced it had formally established an Independent Committee to
examine and recommend regular renewals and/or amendments to
agreements between Melcor Developments Ltd. and the REIT and other
matters as directed by the Board. The Independent Committee will be
chaired by independent and Lead Trustee Larry Pollock.
Financial Highlights |
|
Three-months ended December
31 |
|
Year ended December
31 |
|
($000s) |
2020 |
2019 |
Δ% |
2020 |
2019 |
Δ% |
Non-Standard KPIs |
|
|
|
|
|
|
Net operating income (NOI) |
12,186 |
|
|
11,446 |
|
|
6 |
|
% |
46,456 |
|
|
45,300 |
|
|
3 |
|
% |
Same-asset NOI |
10,975 |
|
|
10,703 |
|
|
3 |
|
% |
41,705 |
|
|
44,193 |
|
|
(6 |
) |
% |
Funds from Operations (FFO) |
6,590 |
|
|
6,002 |
|
|
10 |
|
% |
25,250 |
|
|
25,581 |
|
|
(1 |
) |
% |
Adjusted Funds from Operations (AFFO) |
5,144 |
|
|
4,232 |
|
|
22 |
|
% |
18,127 |
|
|
18,485 |
|
|
(2 |
) |
% |
Adjusted Cash Flows from Operations (ACFO)(9) |
5,283 |
|
|
4,315 |
|
|
22 |
|
% |
18,582 |
|
|
18,610 |
|
|
— |
|
% |
|
|
|
|
|
|
|
Rental revenue |
18,742 |
|
|
18,273 |
|
|
3 |
|
% |
74,572 |
|
|
71,159 |
|
|
5 |
|
% |
Income before fair value adjustment and taxes |
4,248 |
|
|
2,479 |
|
|
71 |
|
% |
14,396 |
|
|
11,845 |
|
|
22 |
|
% |
Fair value adjustment on investment properties(5) |
(2,917 |
) |
|
(1,364 |
) |
|
nm |
(62,748 |
) |
|
(1,622 |
) |
|
nm |
Cash flow from operations |
2,832 |
|
|
2,467 |
|
|
15 |
|
% |
13,786 |
|
|
9,309 |
|
|
48 |
|
% |
Distributions to unitholders |
1,17 |
|
|
2,216 |
|
|
(47 |
) |
% |
5,739 |
|
|
8,882 |
|
|
(35 |
) |
% |
Distributions(7) |
$0.09 |
|
|
$0.17 |
|
|
|
$0.44 |
|
|
$0.68 |
|
|
|
|
|
|
|
|
|
|
Per unit metrics |
|
|
|
|
|
|
Net (loss)/income |
|
|
|
|
|
|
Basic |
($1.20 |
) |
|
($0.40 |
) |
|
|
$0.44 |
|
|
($0.04 |
) |
|
|
Diluted |
($1.20 |
) |
|
($0.40 |
) |
|
|
($1.38 |
) |
|
($0.04 |
) |
|
|
Weighted average number of units for net income/(loss)
($000s):(6) |
|
|
|
|
|
|
Basic |
13,050 |
|
|
13,137 |
|
|
(1 |
) |
% |
13,074 |
|
|
13,162 |
|
|
(1 |
) |
% |
Diluted |
13,050 |
|
|
13,137 |
|
|
(1 |
) |
% |
29,200 |
|
|
13,162 |
|
|
122 |
|
% |
FFO |
|
|
|
|
|
|
Basic |
$0.23 |
|
|
$0.21 |
|
|
|
$0.86 |
|
|
$0.91 |
|
|
|
Payout ratio |
40 |
|
% |
81 |
|
% |
|
51 |
|
% |
74 |
|
% |
|
AFFO |
|
|
|
|
|
|
Basic |
$0.18 |
|
|
$0.15 |
|
|
|
$0.62 |
|
|
$0.65 |
|
|
|
Payout ratio |
51 |
|
% |
114 |
|
% |
|
71 |
|
% |
103 |
|
% |
|
ACFO(9) |
|
|
|
|
|
|
Basic |
$0.18 |
|
|
$0.15 |
|
|
|
$0.64 |
|
|
$0.66 |
|
|
|
Payout ratio |
50 |
|
% |
112 |
|
% |
|
69 |
|
% |
102 |
|
% |
|
Weighted average number of units for FFO & AFFO & ACFO
(000s):(8) |
|
|
|
|
|
|
Basic |
29,176 |
|
|
28,703 |
|
|
2 |
|
% |
29,200 |
|
|
28,226 |
|
|
3 |
|
% |
Diluted |
36,344 |
|
|
36,640 |
|
|
(1 |
) |
% |
36,368 |
|
|
33,763 |
|
|
8 |
|
% |
|
31-Dec-20 |
31-Dec-19 |
Δ% |
Total assets ($000s) |
724,658 |
|
783,534 |
|
(8 |
) |
% |
Equity ($000s)(1) |
289,055 |
|
289,873 |
|
— |
|
% |
Debt ($000s)(2) |
449,658 |
|
454,013 |
|
(1 |
) |
% |
Weighted average interest rate on debt |
3.68 |
% |
3.78 |
% |
(3 |
) |
% |
Debt to GBV, excluding convertible debentures (maximum threshold -
60%) |
50 |
% |
50 |
% |
(1 |
) |
% |
Debt to GBV (maximum threshold - 65%) |
59 |
% |
59 |
% |
(1 |
) |
% |
Finance costs coverage ratio(3) |
2.34 |
|
2.45 |
|
(4 |
) |
% |
Debt service coverage ratio(4) |
2.53 |
|
2.26 |
|
12 |
|
% |
Operational Highlights |
|
31-Dec-20 |
31-Dec-19 |
Δ% |
Number of properties |
39 |
|
39 |
|
0 |
|
% |
Gross leasable area (GLA) (sf) |
3,208,298 |
|
3,208,950 |
|
— |
|
% |
Occupancy (weighted by GLA) |
87.6 |
% |
88.0 |
% |
— |
|
% |
Retention (weighted by GLA) |
82.8 |
% |
59.6 |
% |
39 |
|
% |
Weighted average remaining lease term (years) |
3.96 |
|
4.37 |
|
(9 |
) |
% |
Weighted average base rent (per sf) |
$16.67 |
|
$16.79 |
|
(1 |
) |
% |
- Calculated as the sum of trust units
and Class B LP Units at their book value. In accordance with IFRS
the Class B LP Units are presented as a financial liability in the
consolidated financial statements.
- 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 and convertible debentures,
excluding unamortized discount and transaction costs.
- 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 page 24
of the MD&A for further discussion and analysis.
- 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 page 24 of the MD&A for further discussion and
analysis.
- The abbreviation nm is shorthand for
not meaningful and is used through this MD&A where
appropriate.
- For the purposes of calculating per
unit net income/(loss) 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.
- Distributions for the current and
comparative periods have been paid out at a rate of $0.05625 per
unit per month for the months of January - March and $0.03 per unit
for the months of April - December. Distributions for the
comparative periods have been paid out at a rate of $0.05625 per
unit per month.
- 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.
- In Q4-2019 we
amended our definition of amortization of deferred financing fees
to exclude accretion on convertible debenture. Amortization of
deferred financing fees is an adjusting item in the calculation of
ACFO. This change has been applied retroactively.
MD&A and Financial
StatementsInformation included in this press release is a
summary of results. This press release should be read in
conjunction with Melcor REIT's 2020 consolidated financial
statements and management's discussion and analysis, which can be
found on the REIT’s website at www.MelcorREIT.ca or on SEDAR
(www.sedar.com).
Conference Call &
WebcastUnitholders and interested parties are invited to
join management on a conference call to be held March 5, 2021
at 11:00 AM ET (9:00 AM MT). Call 1-416-915-3239 in the Toronto
area; 800-319-4610 toll free.
The call will be webcast at
www.gowebcasting.com/11057. A replay of the call will be available
shortly after the call is concluded at the same address.
Annual General MeetingWe invite
unitholders to join us at Melcor REIT's annual meeting on
May 20, 2021 at 9:30 am. As we are unable to predict if
restrictions on gathering size will be in place at the time of our
AGM, the REIT will issue a press release with specific location and
dial in information closer to the meeting date and prior to the
proxy deadline date.
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 with exposure to high
growth western Canadian markets. Its portfolio is currently made up
of interests in 39 properties representing approximately 3.21
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-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 more fully defined and
discussed in the REIT’s management discussion and analysis for the
period ended December 31, 2020, which is available on SEDAR at
www.sedar.com.
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:
Nicole Forsythe
Director, Corporate Communications
Tel: 1.855.673.6931 x4707
ir@MelcorREIT.ca