"We anticipate sustained pressure on operational cash flow due to several factors including reduction in office lease rates, heightened tenant incentive and capital expenditure costs, increasing operational expenses, and continued higher financing costs. Despite these challenges, we remain focused on optimizing operational efficiency and maximizing revenue generation to mitigate the financial strain and ensure long-term sustainability in this dynamic environment.
"Earlier in the year, we listed our
"On
"I want to express deep appreciation to retiring board members
FINANCIAL HIGHLIGHTS1:
Financial highlights of our performance are summarized below:
Fourth Quarter:
- Revenue was down 2% at
$18.50 million (Q4-2022 -$18.80 million ). - NOI was up 1% to
$11.53 million (Q4-2022-$11.46 million ). - FFO was down 2% to
$5.65 million or$0.19 per unit (Q4-2022 -$5.78 million or$0.20 per unit). - ACFO was stable at
$3.69 million or$0.13 per unit (Q4-2022 -$3.68 million or$0.13 per unit).
Year-to-date:
- Revenue was steady at
$73.90 million (2022 -$74.11 million ). - NOI was up 1% to
$46.64 million (2022-$46.32 million ). - FFO was down 3% to
$23.87 million or$0.82 per unit (2022 -$24.73 million or$0.85 per unit). - ACFO was down 12% to
$15.65 million or$0.54 per unit (2022 -$17.87 million or$0.61 per unit).
Management believes FFO best reflects our true operating performance and ACFO best reflects our cash position and therefore our ability to pay distributions. Non-cash fair value adjustments may cause significant variability in results, making comparisons less meaningful.
ACFO for the year was impacted by changes in estimate on our normalized capital expenditures and normalized tenant incentives and direct leasing costs. We adjusted our estimates for future spend required to attract and retain tenants. As at
In the quarter rental revenue was down 2% and has remained stable year-to-date. Net rental income was down 1% in the quarter and year-to-date. We saw a 1% increase in NOI in the quarter and year-to-date. Our same-asset NOI calculations, which normalize out
With a focus on increasing liquidity and reducing debt, we are actively seeking strategic opportunities to sell certain assets and allow us to focus on our core assets. In Q1-2023, we sold
Our investment properties are revalued as a minimum of every two years, or as market conditions dictate. Revaluations in 2023 resulted in fair value losses of
We adjusted our normalized capital expenditures estimates in late 2022 to account for increases required to properly manage our assets to attract and retain tenants. This increase in estimate resulted in a reduction in the quarter and year-to-date to both adjusted funds from operations, which was down 8% in the quarter and down 17% year-to-date, as well as adjusted cash from operations which was consistent in the quarter and down 12% year to date. These reductions had an inverse effect on our payout ratios, which have gone up in both the quarter and year-to-date.
In 2023, we had four mortgages up for renewal with a maturing principal balance of
In the year, we repaid
OPERATING HIGHLIGHTS:
We are pleased with the volume of new leasing, renewals and holdovers completed in 2023. Positive leasing activity renewals representing 541,010 sf (including holdovers) for a retention rate of 88% at
UNITHOLDER HIGHLIGHTS
We paid stable monthly distributions at a rate of
SUBSEQUENT EVENTS
Distributions
On
Strategic review
There can be no assurances that the strategic review will result in the REIT pursuing any transaction or that any alternative transaction will be available to the REIT. Furthermore, the Independent Committee has not set a timeline on the completion of this process and we do not intend to comment further on the review until we determine that additional disclosures are appropriate or required.
Financial Highlights | ||||||||||||||||||
Three-months ended | Year ended | |||||||||||||||||
($000s) | 2023 | 2022 | Δ% | 2023 | 2022 | Δ% | ||||||||||||
Non-Standard KPIs | ||||||||||||||||||
Net operating income (NOI)(5) | 11,530 | 11,460 | 1 | % | 46,635 | 46,319 | 1 | % | ||||||||||
Same-asset NOI(5) | 10,961 | 10,801 | 1 | % | 44,049 | 43,178 | 2 | % | ||||||||||
Funds from Operations (FFO)(5) | 5,654 | 5,781 | (2 | )% | 23,869 | 24,725 | (3 | )% | ||||||||||
Adjusted Funds from Operations (AFFO)(5) | 3,567 | 3,523 | 1 | % | 15,178 | 17,248 | (12 | )% | ||||||||||
Adjusted Cash Flows from Operations (ACFO)(5) | 3,691 | 3,679 | — | % | 15,654 | 17,873 | (12 | )% | ||||||||||
Rental revenue | 18,502 | 18,797 | (2 | )% | 73,900 | 74,105 | — | % | ||||||||||
Income before fair value adjustment(5) | 2,763 | 3,529 | (22 | )% | 12,154 | 13,260 | (8 | )% | ||||||||||
Fair value adjustment on investment properties(1) | (8,429 | ) | (9,130 | ) | nm | (16,794 | ) | (11,995 | ) | nm | ||||||||
Cash flow from operations | 3,197 | 4,394 | (27 | )% | 11,993 | 11,936 | — | % | ||||||||||
Distributions to unitholders | 1,555 | 1,555 | — | % | 6,222 | 6,222 | — | % | ||||||||||
Distributions(2) | — | % | — | % | ||||||||||||||
Per Unit Metrics | ||||||||||||||||||
Net income (loss) | ||||||||||||||||||
Basic | ( | ) | ( | ) | ||||||||||||||
Diluted | ( | ) | ( | ) | ||||||||||||||
Weighted average number of units for net income (loss) ($000s):(3) | ||||||||||||||||||
Basic | 12,963 | 12,963 | — | % | 12,963 | — | % | |||||||||||
Diluted | 29,088 | 36,255 | (20 | )% | 29,088 | — | % | |||||||||||
FFO | ||||||||||||||||||
Basic(6) | ||||||||||||||||||
Diluted(6) | ||||||||||||||||||
Payout ratio(6) | 62% | 60% | 58% | 56% | ||||||||||||||
AFFO | ||||||||||||||||||
Basic(6) | ||||||||||||||||||
Payout ratio(6) | 98% | 99% | 92% | 81% | ||||||||||||||
ACFO | ||||||||||||||||||
Basic(6) | ||||||||||||||||||
Payout ratio(6) | 95% | 95% | 89% | 78% | ||||||||||||||
Weighted average number of units for FFO, AFFO & ACFO (000s):(4) | ||||||||||||||||||
Basic | 29,088 | 29,088 | — | % | 29,088 | 29,089 | — | % | ||||||||||
Diluted | 36,255 | 36,255 | — | % | 36,255 | 36,256 | — | % |
(1) The abbreviation nm is shorthand for not meaningful and is used through this MD&A where appropriate.
(2) Distributions for the current and comparative periods have been paid out at a rate of
(3) 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.
(4) For the purposes of calculating per unit FFO, AFFO and ACFO the basic weighted average number of units includes
(5) Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section of the MD&A for further information.
(6) Non-GAAP ratio. Refer to the Non-GAAP and Non-Standard Measures section of the MD&A for further information.
2023 | 2022 | Δ% | |||||||
Total assets ($000s) | 700,998 | 730,769 | (4 | )% | |||||
Equity at historical cost ($000s)(1) | 288,196 | 288,196 | — | % | |||||
Indebtedness ($000s)(2) | 420,339 | 440,688 | (5 | )% | |||||
Weighted average interest rate on debt | 4.52% | 4.01% | 13 | % | |||||
Debt to GBV, excluding convertible debentures (maximum threshold - 60%)(5) | 50% | 51% | (2 | )% | |||||
Debt to GBV (maximum threshold - 65%)(5) | 56% | 57% | (2 | )% | |||||
Finance costs coverage ratio(3) | 2.21 | 2.32 | (5 | )% | |||||
Debt service coverage ratio(4) | 1.93 | 1.88 | 3 | % |
(1) Calculated as the sum of trust units and Class B LP Units at their historical cost. In accordance with IFRS Accounting Standards the Class B LP Units are presented as a financial liability in the consolidated financial statements. Please refer to page 22 for the calculation of Equity at historical cost.
(2) Calculated as the sum of total amount drawn on revolving credit facility, mortgages payable, Class
(3) 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. Refer to the Non-GAAP and Non-Standard Measures section of the MD&A for further information.
(4) Non-GAAP financial ratio. Calculated as FFO; divided by sum of contractual principal repayments on mortgages payable and distributions of Class
(5) Debt to GBV is a Non-GAAP ratio. Refer to the Non-GAAP and Non-Standard Measures section of the MD&A for further information.
Operational Highlights | |||||||||
2023 | 2022 | Δ% | |||||||
Number of properties | 38 | 39 | (3 | )% | |||||
Gross leasable area (GLA) (sf) | 3,150,646 | 3,216,141 | (2 | )% | |||||
Occupancy (weighted by GLA) | 87.6% | 88.1% | (1 | )% | |||||
Retention (weighted by GLA) | 87.9% | 86.1% | 2 | % | |||||
Weighted average remaining lease term (years) | 4.31 | 4.25 | 1 | % | |||||
Weighted average base rent (per sf) | 3 | % |
MD&A and Financial Statements
Information included in this press release is a summary of results. This press release should be read in conjunction with Melcor REIT's 2023 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.sedarplus.ca).
Conference Call & Webcast
Unitholders and interested parties are invited to join management on a conference call to be held
The call will be webcast at https://www.gowebcasting.com/13130. A replay of the call will be available shortly after the call is concluded at the same address.
About Melcor REIT
Melcor 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. As at
Non-standard Measures
NOI, Same-asset NOI, 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 as issued by the
NOI Reconciliation
Three months ended | Year ended | |||||||||||||||||
($000s) | 2023 | 2022 | Δ% | 2023 | 2022 | Δ% | ||||||||||||
Net income/(loss) | (1,616 | ) | (1,062 | ) | 16,313 | 29,610 | ||||||||||||
Net finance costs | 9,305 | 5,084 | 28,685 | 18,400 | ||||||||||||||
Fair value adjustment on Class B LP Units | (6,450 | ) | (3,548 | ) | (22,253 | ) | (20,318 | ) | ||||||||||
Fair value adjustment on investment properties | 8,429 | 9,130 | 16,794 | 11,995 | ||||||||||||||
General and administrative expenses | 818 | 977 | 3,112 | 3,358 | ||||||||||||||
Amortization of tenant incentives | 956 | 962 | 3,975 | 3,725 | ||||||||||||||
Straight-line rent adjustment | 88 | (83 | ) | 9 | (451 | ) | ||||||||||||
NOI | 11,530 | 11,460 | 1 | % | 46,635 | 46,319 | 1 | % |
(1) Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section of the MD&A for further information.
Same-asset Reconciliation
Three months ended | Year ended | |||||||||||||||||
($000s) | 2023 | 2022 | Δ% | 2023 | 2022 | Δ% | ||||||||||||
Same-asset NOI(1) | 10,961 | 10,801 | 1 | % | 44,049 | 43,178 | 2 | % | ||||||||||
Acquisitions | — | — | — | — | ||||||||||||||
Disposals / Asset Held for Sale | 569 | 659 | 2,586 | 3,141 | ||||||||||||||
NOI(1) | 11,530 | 11,460 | 1 | % | 46,635 | 46,319 | 1 | % | ||||||||||
Amortization of tenant incentives | (956 | ) | (962 | ) | (3,975 | ) | (3,725 | ) | ||||||||||
Straight-line rent adjustments | (88 | ) | 85 | (9 | ) | 451 | ||||||||||||
Net rental income | 10,486 | 10,583 | (1 | )% | 42,651 | 43,045 | (1 | )% |
(1) Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section of the MD&A for further information.
FFO & AFFO Reconciliation
Three months ended | Year ended December 31 | |||||||||||||||||
($000s, except per unit amounts) | 2023 | 2022 | Δ% | 2023 | 2022 | Δ% | ||||||||||||
Net income (loss) for the year | (1,616 | ) | (1,062 | ) | 16,313 | 29,610 | ||||||||||||
Add (deduct) | ||||||||||||||||||
Fair value adjustment on investment properties | 8,429 | 9,130 | 16,794 | 11,995 | ||||||||||||||
Fair value adjustment on Class B LP Units | (6,450 | ) | (3,548 | ) | (22,253 | ) | (20,318 | ) | ||||||||||
Amortization of tenant incentives | 956 | 962 | 3,975 | 3,725 | ||||||||||||||
Distributions on Class B LP Units | 1,935 | 1,290 | 7,740 | 7,740 | ||||||||||||||
Fair value adjustment on derivative instruments | 2,400 | (991 | ) | 1,300 | (8,027 | ) | ||||||||||||
Funds From Operations (FFO)(1) | 5,654 | 5,781 | (2 | )% | 23,869 | 24,725 | (3 | )% | ||||||||||
Add (deduct) | ||||||||||||||||||
Straight-line rent adjustments | 88 | (83 | ) | 9 | (451 | ) | ||||||||||||
Normalized capital expenditures | (750 | ) | (750 | ) | (3,000 | ) | (2,514 | ) | ||||||||||
Normalized tenant incentives and leasing commissions | (1,425 | ) | (1,425 | ) | (5,700 | ) | (4,512 | ) | ||||||||||
Adjusted Funds from Operations (AFFO)(1) | 3,567 | 3,523 | 1 | % | 15,178 | 17,248 | (12 | )% | ||||||||||
FFO/Unit(2) | ||||||||||||||||||
AFFO/Unit(2) | ||||||||||||||||||
Weighted average number of units (000s):(3) | 29,088 | 29,088 | — | % | 29,088 | 29,089 | — | % |
(1) Non-GAAP financial measure. Refer to the non-standard measures section of the MD&A for further information.
(2) Non-GAAP ratio. Refer to the non-standard measures section of the MD&A for further information.
(3) For the purposes of calculating per unit FFO and AFFO the basic weighted average number of units includes
ACFO Reconciliation
Three months ended | Year ended December 31 | |||||||||||||||||
($000s, except per unit amounts) | 2023 | 2022 | Δ% | 2023 | 2022 | Δ% | ||||||||||||
Cash flows from operations | 3,197 | 4,394 | (27 | )% | 11,993 | 11,936 | — | % | ||||||||||
Distributions on Class B LP Units | 1,935 | 1,290 | 7,740 | 7,740 | ||||||||||||||
Actual payment of tenant incentives and direct leasing costs | 4,158 | 2,060 | 8,516 | 8,779 | ||||||||||||||
Changes in operating assets and liabilities | (3,140 | ) | (1,596 | ) | (2,677 | ) | (2,288 | ) | ||||||||||
Amortization of deferred financing fees | (284 | ) | (294 | ) | (1,218 | ) | (1,268 | ) | ||||||||||
Normalized capital expenditures | (750 | ) | (750 | ) | (3,000 | ) | (2,514 | ) | ||||||||||
Normalized tenant incentives and leasing commissions | (1,425 | ) | (1,425 | ) | (5,700 | ) | (4,512 | ) | ||||||||||
Adjusted Cash Flows from Operations (ACFO)(1) | 3,691 | 3,679 | — | % | 15,654 | 17,873 | (12 | )% | ||||||||||
ACFO/Unit(2) | 0.61 | |||||||||||||||||
Weighted average number of units (000s):(3) | 29,088 | 29,088 | — | % | 29,088 | 29,089 | — | % |
(1) Non-GAAP financial measure. Refer to the non-standard measures section of the MD&A for further information.
(2) Non-GAAP ratio. Refer to the non-standard measures section of the MD&A for further information.
(3) 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: Investor Relations Tel: 1.855.673.6931 ir@MelcorREIT.ca
Source:
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