Morguard Corporation Announces 2019 Third Quarter Results and Regular Eligible Dividend

MISSISSAUGA, ON, Nov. 6, 2019 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the three and nine months ended September 30, 2019.

Reporting Highlights

• Total revenue increased by $5.4 million, or 1.8%, to $299.4 million for the three months ended September 30, 2019, compared to $294.0 million for the same period in 2018.
  
  
• Net operating income ("NOI") increased by $4.7 million, or 3.2%, to $150.1 million for the three months ended September 30, 2019, compared to $145.4 million for the same period in 2018, primarily due to net acquisition activity completed during and subsequent to September 30, 2018, and the impact of the adoption of IFRS 16.
  
  
• Net income decreased by $57.0 million to a net loss of $2.3 million for the three months ended September 30, 2019, compared to a net income of $54.7 million for the same period in 2018, primarily due to a decrease in non-cash net fair value gain of $32.2 million, an increase in equity loss from investments of $12.8 million and an increase in provision for impairment of $19.1 million, partially offset by an increase in net operating income of $4.7 million and a decrease in income taxes of $5.7 million as compared to 2018.
  
  
• Normalized FFO increased by $0.4 million to $57.5 million for the three months ended September 30, 2019, compared to $57.1 million for the same period in 2018, representing a 0.7% increase.

Operational and Balance Sheet Highlights:

• As at September 30, 2019, the Company's total assets were $11.4 billion compared to $11.1 billion as at December 31, 2018.
  
  
• During the year, occupancy was consistent across all asset classes, supporting the Company's business objective of generating stable and increasing cash flow through its diversified portfolio of real estate assets.
  
  
• On August 28, 2019, Morguard Residential REIT completed an offering for 5,226,200 Units sold for a price of $19.75 per Unit for aggregate gross proceeds of $103.2 million. The net proceeds after underwriters' commission and other closing costs was $99.6 million. The Company purchased 1,269,000 of the Units offered amounting to $25.1 million.
  
  
• On July 24, 2019, the Company acquired an office property consisting of 157,350 square feet located in Ottawa, Ontario, for a purchase price of $53.1 million, including closing costs. The acquisition was partially financed by a new mortgage in the amount of $28.6 million at an interest rate of 2.89% for a term of 10 years.

Financial Highlights

	Three months ended September 30		Nine months ended September 30
(in thousands of dollars, except per common share)	2019	2018	2019	2018
Revenue from real estate properties	$215,253	$209,610	$651,186	$620,510
Revenue from hotel properties	65,525	64,689	184,351	180,538
Management and advisory fees	13,910	14,998	37,991	43,836
Interest and other income	3,377	3,414	13,420	7,734
Sales of product and land	1,345	1,322	4,493	3,958
Total revenue	$299,410	$294,033	$891,441	$856,576
Revenue from real estate properties	$215,253	$209,610	$651,186	$620,510
Revenue from hotel properties	65,525	64,689	184,351	180,538
Land rent arbitration settlement	-	-	-	17,250
Property operating expenses	(83,538)	(83,490)	(290,907)	(280,136)
Hotel operating expenses	(47,181)	(45,425)	(139,852)	(132,798)
Net operating income	$150,059	$145,384	$404,778	$405,364
Net income (loss) attributable to common shareholders	($1,180)	$46,750	$102,028	$238,962
Net income (loss) per common share – basic and diluted	($0.10)	$4.11	$9.04	$20.83
Funds from operations	$70,903	$56,909	$186,780	$179,986
FFO per common share – basic and diluted	$6.29	$4.98	$16.55	$15.69
Normalized funds from operations	$57,460	$57,082	$166,322	$163,171
Normalized FFO per common share – basic and diluted	$5.09	$5.00	$14.74	$14.23

Net Income (Loss)

Net loss for the three months ended September 30, 2019, was $2.3 million compared to net income of $54.7 million in 2018. The decrease in net income of $57.0 million for the three months ended September 30, 2019, was primarily due to the following:

• An increase in net operating income of $4.7 million, primarily due to an increase in NOI due to net acquisition activity completed during and subsequent to September 30, 2018, and the impact of the adoption of IFRS 16, resulting in land rent expense being included in NOI in the comparative period while effective January 1, 2019, a finance charge is included in interest expense;
  
  
• A decrease in management and advisory fees of $1.1 million, primarily due to lower asset management, property management and leasing fees earned, partially offset by higher disposition fees compared to 2018;
  
  
• An increase in interest expense of $4.5 million, mainly due to higher interest on lease liabilities (noted above), interest on mortgages, interest on Unsecured Debentures and interest on bank indebtedness, partially offset by lower interest on convertible debentures;
  
  
• An increase in impairment provision of $19.1 million, due to decrease in occupancy experienced at hotel properties mainly located in Alberta;
  
  
• A decrease in non-cash net fair value gain of $32.2 million, mainly due to a higher net fair value loss recorded on the Company's real estate properties and an increase in net fair value loss on Morguard Residential REIT Units, partially offset by an increase in net fair value gain on investment in marketable securities;
  
  
• An increase in equity loss from investments of $12.8 million, mainly due to an increase in fair value loss;
  
  
• An increase in other income of $3.1 million, mainly due to an increase in foreign exchange gain; and
  
  
• A decrease in income taxes (current and deferred) of $5.7 million.

Net Operating Income

NOI increased by $4.7 million, or 3.2%, during the three months ended September 30, 2019, to $150.1 million, compared to $145.4 million generated in 2018, and is further analyzed by asset type below.

	Three months ended September 30		Nine months ended September 30
(in thousands of dollars)	2019	2018	2019	2018
Multi-suite residential	$52,273	$50,740	$155,692	$149,246
Retail	34,690	31,558	106,546	95,681
Office	33,834	33,108	101,418	95,454
Industrial	2,171	2,215	6,775	7,217
Hotels	18,344	19,264	44,499	47,740
Adjusted NOI	141,382	136,885	414,930	395,338
Land rent arbitration settlement	-	-	-	17,250
IFRIC 21 adjustment – multi-suite residential	7,313	7,227	(8,762)	(5,866)
IFRIC 21 adjustment – retail	1,364	1,272	(1,390)	(1,358)
NOI	$150,059	$145,384	$404,778	$405,364

Adjusted NOI for the three months ended September 30, 2019, increased by $4.5 million to $141.4 million compared to $136.9 million in 2018, primarily due to the following:

• An increase in the Canadian residential portfolio of $1.3 million, primarily resulting from an increase of $0.9 million mainly from rental rate growth, improved occupancy and lower operating expenses, and an increase in NOI of $0.4 million due to the adoption of IFRS 16;
  
  
• A decrease in U.S. residential NOI of US$0.1 million, primarily resulting from a decrease of US$0.9 million due to the sale of five properties located in Louisiana during the first and second quarters of 2019, partially offset by an increase of US$0.8 million mainly from rental rate growth and improved occupancy, as well as a realty tax refund received at a property located in Chicago, Illinois;
  
  
• An increase of $2.9 million in Canadian retail properties resulting from an increase of $1.9 million due to the adoption of IFRS 16 and an increase of $1.0 million due to higher base rent, improved occupancy and higher operating expense recoveries;
  
  
• An increase in the office portfolio of $0.7 million, primarily due to acquisition of three properties during and subsequent to the third quarter of 2018, which resulted in an increase of $2.0 million partially offset by a decrease of $0.9 million mainly due to lower base rent, lower occupancy and lower operating expense recovery and a decrease in lease cancellation fees of $0.5 million received from a tenant at a property located in Saint-Laurent, Québec in 2018;
  
  
• A decrease in the hotel portfolio by $0.9 million due to a decrease of $1.2 million resulting from higher vacancy at hotels located in Alberta, a decrease of $0.8 million due to the re-branding of a hotel located in Red Deer, Alberta, partially offset by an increase of $1.1 million at the newly re-developed dual branded Hilton Garden Inn and Homewood Suites by Hilton located in Ottawa, Ontario which commenced its operations on January 1, 2019; and
  
  
• An increase of $0.5 million due to the change in the U.S. dollar foreign exchange rate.

Subsequent Events

On October 1, 2019, the Company completed the refinancing of three U.S. multi-suite residential properties located in Texas, in the amount of $109.3 million (US$82.5 million) at a weighted average interest rate of 3.24% and for terms of 10 years. The maturing mortgages amounted to $101.6 million (US$76.7 million) were open and prepayable at no penalty before their scheduled maturity on December 1, 2019 and had a weighted average interest rate of 3.21%.

The Company entered into a binding agreement to acquire the 51% interest not already owned in the Marquee at Block 37, a multi-suite residential property comprising 691 suites located in Chicago, Illinois, for a purchase price of US$135.2 million excluding closing costs. The acquisition is expected to close during the fourth quarter of 2019. Concurrent with the acquisition, the Company secured mortgage financing in the amount of US$165.0 million (at the Company's 100% interest), with a fixed term of 10 years and an interest rate of 3.27%.

Fourth Quarter Dividend

The Board of Directors of Morguard Corporation announced that the fourth quarterly, eligible dividend of 2019 in the amount of $0.15 per common share will be paid on December 31, 2019, to shareholders of record at the close of business on December 16, 2019.

The Company's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2019, 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 and nine months ended September 30, 2019 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 $21.3 billion. Morguard owns a diversified portfolio of 208 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,638 residential suites, approximately 17.0 million square feet of commercial leasable space and 5,903 hotel rooms. Morguard also currently owns a 58.1% interest in Morguard Real Estate Investment Trust , a 44.8% effective interest in Morguard North American Residential Real Estate Investment Trust and a 72.6% effective interest in Temple Hotels Inc. 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