Morguard Corporation Announces 2020 Second Quarter Results, Regular Eligible Dividend and Provides Operational Update Related to COVID-19

MISSISSAUGA, ON, Aug. 5, 2020 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) today announced its financial results for the three and six months ended June 30, 2020, including a brief operational and liquidity update as we continue to focus on managing through the COVID-19 pandemic.

Reporting Highlights

• Total revenue from real estate properties increased by $2.4 million, or 1.1% to $218.5 million for the three months ended June 30, 2020, compared to $216.1 million for the same period in 2019.
• Total revenue from hotel properties decreased by $56.4 million, or 86.5% to $8.8 million for the three months ended June 30, 2020, compared to $65.2 million for the same period in 2019.
• Net operating income ("NOI") decreased by $19.0 million, or 12.6%, to $131.2 million for the three months ended June 30, 2020, compared to $150.1 million for the same period in 2019, primarily due to lower NOI from the hotel portfolio and higher bad debt expense.
• Net income decreased by $174.4 million to a net loss of $105.0 million for the three months ended June 30, 2020, compared to net income of $69.3 million for the same period in 2019, primarily due to a decrease in net fair value gain of $183.8 million.
• Normalized FFO decreased by $17.4 million, or 29.5% to $41.7 million for the three months ended June 30, 2020, compared to $59.1 million for the same period in 2019.

Operational and Balance Sheet Highlights

• The Company recognizes the impact of the novel strain of coronavirus ("COVID-19") has on many of its tenants in North America and its stakeholders, and is committed in taking measures to protect the health of its employees, tenants and communities.
• As at June 30, 2020, the Company's total assets were $11.5 billion compared to $11.7 billion as at December 31, 2019.
• During the year, occupancy was consistent across all commercial and residential asset classes, supporting the Company's business objective of generating stable and increasing cash flow through its diversified portfolio of real estate assets.
• During the three months ended June 30, 2020, the Company financed new and existing mortgages for additional net proceeds of $53.5 million and paid down bank indebtedness in the amount of $80.7 million.

Financial Highlights

	Three months ended June 30		Six months ended June 30
(in thousands of dollars, except per common share)	2020	2019	2020	2019
Revenue from real estate properties	$218,477	$216,093	$446,743	$435,933
Revenue from hotel properties	8,831	65,199	56,636	118,826
Management and advisory fees	10,081	12,430	22,278	24,081
Interest and other income	3,516	6,525	7,558	10,924
Total revenue	$240,905	$300,247	$533,215	$589,764
Revenue from real estate properties	$218,477	$216,093	$446,743	$435,933
Revenue from hotel properties	8,831	65,199	56,636	118,826
Property operating expenses	(85,243)	(82,990)	(216,177)	(207,369)
Hotel operating expenses	(10,891)	(48,157)	(53,427)	(92,671)
Net operating income	$131,174	$150,145	$233,775	$254,719
Net income (loss) attributable to common shareholders	($65,396)	$69,722	($31,984)	$103,208
Net income (loss) per common share – basic and diluted	($5.81)	$6.17	($2.84)	$9.14
Funds from operations	$48,881	$62,311	$55,874	$115,877
FFO per common share – basic and diluted	$4.35	$5.52	$4.97	$10.26
Normalized funds from operations	$41,652	$59,085	$93,008	$111,562
Normalized FFO per common share – basic and diluted	$3.71	$5.24	$8.27	$9.88

OPERATIONAL AND LIQUIDITY UPDATE

The Company recognizes the impact COVID-19 has on many of its tenants in North America and its stakeholders, and is committed in taking measures to protect the health of its employees, tenants and communities. In March, Morguard initiated its crisis management plan with a team mandated to maintain a safe environment for our tenants, residents, employees and stakeholders, coordinating efforts across our portfolio, standardizing communications and responding as circumstances demand.

These are unprecedented times. Everyone has been impacted by the global efforts to reduce the spread of COVID-19. With the guidance of public health authorities, and at the direction of various levels of government, Morguard has implemented measures to help reduce the spread of COVID-19 and we are actively monitoring the ongoing developments with regards to COVID-19 and are committed in ensuring a healthy and safe environment, adjusting our service model as necessary. 

The Government of Canada has partnered with the provincial governments to deliver the Canada Emergency Commercial Rent Assistance ("CECRA") program. The program is intended to provide relief for small businesses and commercial landlords who are experiencing financial difficulties during the COVID-19 Pandemic.

The Company is currently finalizing the application under the CECRA program. The Company's commercial tenant enrolment was 5.6% (based on percentage of second quarter revenue) of which retail tenant enrollment was 9.5%.

On April 11, 2020, the Canada Emergency Wage Subsidy ("CEWS") was enacted, which provides a subsidy for each employee employed between March 15 to June 6, 2020. Subsequently, the Government of Canada extended CEWS to December 19, 2020.

The Company and associated related party group under common control with the Company, including Paros Enterprises Limited, have satisfied certain eligibility criteria, including (among others) a significant decline in revenue due to the temporary closures of non-essential services. The Company will continue to assess its eligibility to December 19, 2020. For the three and six months ended June 30, 2020, the Company recorded $13.4 million as a deduction of the related expense.

Liquidity
The Company has liquidity of approximately $469 million comprised of $136 million in cash and $333 million available under its revolving credit facilities. In addition, the Company has approximately $865 million of unencumbered income producing and hotel properties which could be financed. To further enhance liquidity, the Company has narrowed down the scope of its capital expenditure program to ensure the availability of resources, allocating an amount that enables the Company to maintain the structural and overall safety of the properties. Management has also implemented various initiatives to reduce or defer operating expenses, property tax installments, hydro payments and corporate income tax installments. Management is also monitoring various government assistance programs in Canada and the U.S. structured to provide relief from personnel costs and commercial rent subsidies.

The Company has approximately $361 million of mortgages payable maturing during 2020 having an aggregate loan-to-value ratio of 36% which management expects to be able to refinance at similar or favorable terms. In addition, the Company has $200 million of senior unsecured debentures maturing in November 2020. The Company expects to be able to issue new debt instruments and use current liquidity sufficient to permit the repayment of its 2020 maturities.

The duration and impact of the COVID-19 pandemic is unknown at this time. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial performance and financial position of the Company in future periods.

Morguard's strategically diversified asset portfolio and healthy, conservative debt ratios and financial resources provide strength against economic and real estate cycles. Morguard has always been driven by our commitment to real estate for the long term. Our experience has proven that this persistence has driven greater value for our shareholders year over year, and our diversified portfolio and conservative debt level position us well against any potential challenges. We will continue to carry on with this approach.

April - July 2020 Collections
As at August 5, 2020, the Company's collection of rental revenues since April 2020 is summarized below by asset class:

Asset Class					% Rental
	April	May	June	July	Revenue
Residential	99.1%	98.4%	97.2%	95.3%	41.7%
Retail	54.0%	50.0%	54.7%	64.4%	28.0%
Office	95.3%	93.6%	95.7%	93.9%	28.9%
Industrial	90.2%	88.8%	84.2%	85.1%	1.4%
Total	84.8%	82.7%	84.1%	85.8%	100.0%

Operational Update
The following provides an operating update on the Company's portfolio by asset class:

Residential
The Company has halted evictions for non-payment of rent and implemented a rent deferral program for our residential tenants who are financially constrained due to the impact of COVID-19. The Company will also ensure pertinent and timely information regarding government financial support programs is shared with tenants. As at August 5, 2020, approximately 0.7% of residential tenants have deferred payment plans. In addition, commencing with April's rental payment, the Company has waived the collection of rental increases and late fees for existing tenants during this period of crisis.

As at August 5, 2020, the Company has collected approximately 95.3% (96.5% in Canada / 94.3% in the U.S.) of July residential rental revenue which is materially in line with historical collection rates. Management will monitor rent collections and compassionately follow up with those accounts in arrears as the impact of the pandemic continues to weigh on the North American economy.

As at August 5, 2020, the Company's occupancy remains stable in Canada and the U.S. as leasing agents work remotely and utilize online technology to continue leasing activity following the onset of social distancing guidelines. Generally speaking, current conditions including social distancing has reduced leasing traffic. Management will closely monitor traffic and turnover levels in the coming months as we move through our peak leasing season.

Retail & Office
Due to non-essential business closure orders issued by the various provinces in Canada, the majority of the Company's retail tenants were closed for portions of the second quarter. The easing of these restrictions varied by province and by industry. All of the Company's enclosed malls are now open and the vast majority of tenants are allowed to operate.

Buildings within the Company's office portfolio have generally remained open during the pandemic, however, due to closure of non-essential businesses and social distancing requirements most our tenants have implemented a work-from-home protocol. The Company has a significant amount of office space leased to government tenants. This will help mitigate the risk of non-payment of rent. Approximately 37% of the Company's office annualized rental revenue is derived from government tenants.

The Company is working with all tenants to review their circumstances and to consider rent deferrals as necessary and are being especially supportive of small business retail tenants. Deferrals are being considered on a case-by- case basis. As at August 5, 2020, most retailers are waiting for clarification on the extent of the economic crisis before settling deferral terms. The federal government has also introduced legislation to assist landlords and small businesses with their rent obligations during the COVID-19 pandemic.

Hotels
The Company has undertaken significant steps to mitigate the operational and financial impacts from emergency measures enacted to combat the COVID-19 pandemic. As at August 5, 2020, of the Company's 38 hotels, 31 are currently open for business at reduced occupancy levels and are serving guests in compliance with government health guidelines. The temporary closure of seven hotels allows the Company to minimize any financial impact and to consolidate operations at certain hotels within the same sub-market. The Company's hotel asset class represents less than 10% of total NOI and less than 5% of total assets.

Net Income (Loss)

Net loss for the three months ended June 30, 2020, was $105.0 million compared to net income of $69.3 million in 2019. The decrease in net income of $174.4 million for the three months ended June 30, 2020, was primarily due to the following:

• A decrease in net operating income of $19.0 million primarily due to lower NOI from the hotel portfolio due to hotel closures and reduced occupancies. In addition, lower NOI from the retail and office portfolio was mainly caused by higher bad debt expense, partially offset by an increase in multi-suite residential NOI and from the net impact of acquisitions and dispositions. Included in NOI is a provision for CEWS which partially offset the overall decline in NOI;
• An increase in interest expense of $2.1 million, mainly due to higher interest on Unsecured Debentures and interest on bank indebtedness, partially offset by lower interest on loans payable and other;
• A decrease in property management and corporate expense of $6.1 million, primarily due to a provision for CEWS, partially offset by an increase in non-cash compensation expense related to the Company's Stock Appreciation Rights ("SARs") plan;
• An increase in non-cash net fair value loss of $183.8 million, mainly due to a net fair loss recorded on the Company's real estate properties and an increase in fair value loss on Morguard Residential REIT Units, partially offset by an increase in fair market value gain on the Company's marketable securities; and
• An increase in income tax recovery (current and deferred) of $25.3 million.

Net Operating Income

NOI decreased by $19.0 million, or 12.6%, during the three months ended June 30, 2020, to $131.2 million, compared to $150.1 million generated in 2019, and is further analyzed by asset type below.

	Three months ended June 30		Six months ended June 30
(in thousands of dollars)	2020	2019	2020	2019
Multi-suite residential	$62,117	$52,273	$120,749	$103,349
Retail	27,067	35,045	60,901	71,856
Office	32,102	33,857	66,862	67,584
Industrial	1,616	2,456	3,572	4,604
Hotels	(2,060)	17,042	3,209	26,155
Adjusted NOI	120,842	140,673	255,293	273,548
IFRIC 21 adjustment – multi-suite residential	8,901	8,083	(18,755)	(16,075)
IFRIC 21 adjustment – retail	1,431	1,389	(2,763)	(2,754)
NOI	$131,174	$150,145	$233,775	$254,719

Adjusted NOI for the three months ended June 30, 2020, decreased by $19.8 million, or 14.1% to $120.8 million, compared to $140.7 million in 2019 primarily due to the following:

• An increase in the Canadian residential portfolio of $3.3 million primarily resulting from an increase of $1.5 million from rental rate growth and lower operating expenses and an increase of $1.7 million due a provision for CEWS;
• An increase in U.S. residential NOI of US$3.9 million primarily from an increase of US$2.9 million due to the acquisition of the remaining 51% interest in Marquee at Block 37 and consolidation of its equity investment interest during the fourth quarter of 2019 and from rental rate growth and lower operating expenses;
• A decrease of $7.8 million mainly in Canadian retail properties resulting from a decrease of $7.8 million due to bad debt expense stemming from closure of non-essential businesses from the impact of COVID-19 and from the 25% landlord portion of the CECRA program, as well as lower recoveries of operating expenses and lower basic rent and a decrease in lease cancellation fees of $1.3 million, partially offset by an increase of $1.3 million relating to a provision for CEWS;
• A decrease in the office portfolio of $1.8 million, primarily due to a decrease of $3.6 million resulting from bad debt expense stemming from the impact of COVID-19 and from the 25% landlord portion of the CECRA program, as well as lower basic rent, parking revenue and a decrease of $1.4 million due to a rental abatement at a single tenant property located in Calgary, Alberta, partially offset by the acquisition of two properties during 2019, which resulted in an increase of $2.3 million and an increase of $1.1 million relating to a provision for CEWS;
• A decrease in the hotel portfolio of $19.1 million primarily due to a decrease of $23.6 million due to hotel closures, lower occupancy and lower revenue per available room due to current economic conditions experienced in all provinces as a result of the COVID-19 pandemic, partially offset by an increase of $4.5 million due to a provision for CEWS; and
• An increase of $2.8 million due to the change in the U.S. dollar foreign exchange rate.

Funds From Operations

For the three months ended June 30, 2020, the Company recorded FFO of $48.9 million ($4.35 per common share), compared to $62.3 million ($5.52 per common share) in 2019. The decrease in FFO of $13.4 million is mainly due to the following: 

• A decrease in Adjusted NOI of $19.8 million, primarily due to lower Adjusted NOI from the hotel portfolio due to hotel closures and reduced occupancies from the impact of COVID-19. In addition, lower Adjusted NOI from the retail and office portfolio was mainly due to higher bad debt expense, which was partially offset by higher Adjusted NOI from the residential portfolio, the net impact of acquisitions and dispositions and a provision for CEWS.
• A decrease in management and advisory fees of $2.3 million primarily due to lower property management and leasing fees earned compared to 2019;
• A decrease in interest and other income of $3.0 million mainly due to lower income earned from investments;
• An increase in interest expense of $2.1 million, mainly due to higher interest on Unsecured Debentures and interest on bank indebtedness, partially offset by lower interest on loans payable and other;
• A decrease in property management and corporate expenses of $6.1 million, primarily due to a provision for CEWS, partially offset by an increase in non-cash compensation expense related to the Company's SARs plan;
• A decrease in current income taxes of $0.8 million;
• A decrease in the non-controlling interests' share of FFO of $4.2 million;
• An increase in non-controlling interest at Morguard Residential REIT of $1.8 million; and
• An increase in unrealized changes in the fair value of the Company's marketable securities of $6.7 million.

The change in foreign exchange rate had a positive impact on FFO of $0.5 million ($0.05 per common share).

Normalized FFO for the three months ended June 30, 2020, was $41.7 million, or $3.71 per common share, versus $59.1 million, or $5.24 per common share, for the same period in 2019, which represents a decrease of $17.4 million, or 29.5%.  Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.

Third Quarter Dividend

The Board of Directors of Morguard Corporation announced that the third quarterly, eligible dividend of 2020 in the amount of $0.15 per common share will be paid on September 30, 2020, to shareholders of record at the close of business on September 15, 2020.

The Company's unaudited condensed consolidated financial statements for the three months ended June 30, 2020, along with Management's Discussion and Analysis will be available on the Company's website at www.morguard.com and will be filed with SEDAR at www.sedar.com.

Non-IFRS Measures

The Company's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). The following measures, NOI, Adjusted NOI, Comparative NOI, FFO and Normalized FFO (collectively, the "non-IFRS measures") as well as other measures discussed elsewhere in this press release, do not have a standardized meaning prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers in similar or different industries. The Company uses these measures to better assess the Company's underlying performance and financial position and provides these additional measures so that investors may do the same. Details on non-IFRS measures are set out in the Company's Management's Discussion and Analysis for the three months ended June 30, 2020 and available on the Company's profile on SEDAR at www.sedar.com.

About Morguard Corporation

Morguard Corporation is a real estate company, with total assets owned and under management valued at $20.1 billion. As at August 5, 2020, Morguard owns a diversified portfolio of 204 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,638 residential suites, approximately 16.9 million square feet of commercial leasable space and 5,758 hotel rooms. Morguard also currently owns a 59.6% interest in Morguard Real Estate Investment Trust and a 44.8% effective interest in Morguard North American Residential Real Estate Investment Trust. Morguard also provides advisory and management services to institutional and other investors. For more information, visit the Company's website at www.morguard.com.

SOURCE Morguard Corporation

Morguard Corporation, K. Rai Sahi, Chief Executive Officer, T 905-281-3800; Paul Miatello, Chief Financial Officer, T 905-281-3800

Related Links

http://www.morguard.com