Morguard Corporation Announces 2014 First Quarter Results and Regular Eligible Dividend

TSX: MRC

MISSISSAUGA, ON, May 13, 2014 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) announced its financial results for the three months ended March 31, 2014.

HIGHLIGHTS

  • Total revenues increased by 25.6% to $140.0 million compared to $111.4 million in 2013.
  • Normalized net operating income ("Normalized NOI"), which excludes the impact of IFRIC 21 and the land rent arbitration expense, increased by 29.4% to $61.8 million compared to $47.8 million for the same period in 2013.
  • Normalized funds from operations ("Normalized FFO"), which excludes non-recurring items, increased by 14.4% to $45.1 million for the quarter ended March 31, 2014 compared to $39.4 million for the same period in 2013.
  • Net income decreased to $26.6 million in 2014 compared to $100.0 million in 2013.
  • Occupancy rates remained steady as compared to March 31, 2013.  Combined retail, office and industrial occupancy were 92.6% at March 31, 2014, compared to 92.8% at March 31, 2013.  Combined multi-unit residential occupancy was 95.3% at March 31, 2014, compared to 95.6% at March 31, 2013.
  • Occupancy commenced at Performance Court, a 21-storey, 361,000 square-foot office development in Ottawa, Ontario.  During Q1 2014 Performance Court's anchor tenant, occupying approximately 23% of the building's GLA, took possession of its premises and commenced paying rent.

All amounts in thousands of Canadian dollars, except for per share amounts, unless otherwise noted.

FINANCIAL HIGHLIGHTS

     
Three months ended March 31,    
(in thousands of dollars)   2014   2013
Revenue from income producing properties   $118,203   $92,038
Management and advisory fees   16,197   16,227
Interest and other   4,307   1,958
Sales of product and land   1,285   1,224
Total revenues   139,992   111,447
         
Revenue from income producing properties   118,203   92,038
Property operating costs and realty tax expense   (70,081)     (52,161)
Land lease arbitration expense   (2,046)   (355)
Net operating income   46,076   39,522
IFRIC 21 and land rent arbitration expense   15,757   8,268
Normalized net operating income   $61,833   $47,790
         
Consolidated funds from operations (FFO)   $43,856   $50,338
  Per share - basic and diluted   $3.49   $3.99
         
Normalized FFO   $45,100   $39,423
  Per share - basic and diluted   $3.59   $3.12
         
Net income attributable to common shareholders   $26,630   $99,576
  Per share - basic and diluted   $2.12   $7.88

NET INCOME

The Company's net income attributable to common shareholders for the three months ended March 31, 2014, was $26,630 ($2.12 per share), compared to $99,576 ($7.88 per share) in 2013. The decrease in net income of $72,946 for the three months ended March 31, 2014, was primarily due to a decrease in fair value gains of $35,268, an increase in interest expense of $6,142, an increase in management and corporate expenses of $1,108, a decrease in equity income from investments of $17,257, a decrease in other income of $19,094 and an increase in income taxes of $2,660. These items were partially offset by an increase in net operating income of $6,554 and an increase in interest and other income of $2,349.

NET OPERATING INCOME

Three months ended March 31,   2014   2013
(In thousands of dollars)   NOI   Adjustments   Normalized
NOI
  NOI   Adjustments   Normalized
NOI
Net operating income - Canadian properties                        
Multi-unit residential - Canada   $12,550   $702   $13,252   $13,307   $165   $13,472
Retail - Canada   7,082   1,093   8,175   8,067   144   8,211
Office and industrial   13,656   251   13,907   9,625   46   9,671
Hotel   1,786   -   1,786   691   -   691
    35,074   2,046   37,120   31,690   355   32,045
Net operating income - U.S. properties in U.S. dollars                        
Multi-unit residential - U.S.   US 6,797   US   9,570   US 16,367   US 4,784   US 4,967   US  9,751
Retail - U.S.   US 3,171   US   2,853   US   6,024   US 2,983   US 2,881   US  5,864
    US 9,968   US 12,423   US 22,391   US 7,767   US 7,848   US 15,615
Exchange amount to Canadian dollars   1.1037   1.1037   1.1037   1.0083   1.0083   1.0083
Net operating income - U.S. properties in Canadian dollars   11,002   13,711   24,713   7,832   7,913   15,745
Net operating income   $46,076   $15,757   $61,833   $39,522   $8,268   $47,790

Normalized NOI adjusts for the impact of IFRIC 21 by recognizing realty taxes on a pro rated basis over the entire year or the period of ownership for the properties acquired during the year and excludes the land rent arbitration expense. Normalized NOI for the three months ended March 31, 2014, increased by $14.0 million to $61.8 million compared to $47.8 million in 2013, representing an increase of 29.4%.  The increase was predominantly the result of the acquisitions of the Canadian multi-unit residential property, the five hotel properties and the 12 U.S. multi-unit residential properties purchased in 2013 and the industrial development project completed in 2013 which increased NOI by $9.9 million and the lease cancellation fee of $4.3 million received from an office tenant during the first quarter of 2014.

CONSOLIDATED FUNDS FROM OPERATIONS ("Consolidated FFO")
The Company's consolidated FFO includes funds available to non-controlling interests and was calculated as follows:

         
Three months ended March 31,
(In thousands of dollars except for per share amounts)
  2014   2013
Net income attributable to common shareholders   $26,630   $99,576
Items not affecting cash:        
  Fair value gain on real estate properties   (11,940)   (34,310)
  Fair value loss (gain) on Morguard Residential REIT Units, net   7,291   (5,261)
  Fair value gain on Morguard REIT 2012 debentures   (475)   -
  Fair value gain of conversion option of convertible debentures   77   -
  Distribution to Morguard Residential REIT's external unitholders   3,577   2,833
  Non-controlling interests' share of fair value gain on real estate properties         9   50
  Deferred income taxes   5,285   855
  Depreciation on hotel buildings   901   490
  Depreciation on owner occupied property   26   26
Equity income from Morguard REIT   (16,127)   (32,524)
Morguard REIT's equity accounted FFO   11,296   10,690
Foreign exchange loss   3,595   -
Realty tax expense accounted for under IFRIC 21   13,711   7,913
         
Consolidated FFO   $43,856   $50,338
Consolidated FFO per share amounts - basic and diluted   $3.49   $3.99
         
Consolidated FFO - Morguard's Share        
         
Consolidated FFO (from above)   $43,856   $50,338
Less non-controlling interest: Morguard Residential REIT   (5,507)   (3,265)
Consolidated FFO - Morguard's share   $38,349   $47,073
Per share amounts - basic and diluted   $3.05   $3.73

For the three months ended March 31, 2014, the Company recorded consolidated FFO of $43,856 ($3.49 per share), compared to $50,338 ($3.99 per share) in 2013. The decrease in consolidated FFO of $6,482, which reflects a 12.9% decrease, is mainly due to an increase in other expense of $15,499, net of the foreign exchange loss, an increase in interest expense of $6,322 and an increase in property management and corporate expenses of $1,108. These items were partially offset by an increase in net operating income excluding the impact of IFRIC 21 of $12,352, an increase in interest and other income of $2,349 and a decrease in current taxes of $1,770.  The change in foreign exchange rates had a positive impact on FFO of $1,040.

Excluding the net of tax impact of the non-recurring items (the arbitration settlement received in 2013 of $14,850 and the increase in the land rent arbitration expense of $1,691 in 2014, Normalized FFO for the period ended March 31, 2014, would have been $45,100 or $3.59 per share versus $39,423 or $3.12 per share for the same period in 2013, which represents an increase in Normalized FFO of $5,677 or 14.4%.

Morguard's share of consolidated FFO totalled $38,349 or $3.05 per share, compared to $47,073 or $3.73 per share in 2013, which represents a decrease of $8,724 or 18.5%.

SECOND QUARTER DIVIDEND

The board of directors of Morguard Corporation announced today that the second quarterly, eligible dividend of 2014 in the amount of $0.15 per common share will be paid on June 30, 2014 to shareholders of record at the close of business on June 16, 2014.

Readers are cautioned that although the terms "Net Operating Income", "Normalized NOI", "Funds From Operations" and "Normalized FFO" are commonly used to measure, compare and explain the operating and financial performance of Canadian real estate companies and such terms are defined in the Management's Discussion and Analysis, such terms are not recognized terms under Canadian generally accepted accounting principles.  Such terms do not necessarily have a standardized meaning and may not be comparable to similarly titled measures presented by the other publicly traded entities.

The Company's interim unaudited condensed financial statements for the three months ended March 31, 2014, along with the 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.

Morguard Corporation is a real estate company, which owns a diversified portfolio of 123 multi-unit residential, retail, hotel, office and industrial properties comprising of 16,099 multi-unit residential suites, 1,056 hotel rooms and approximately 7.4 million square feet of commercial leasable space. Morguard Corporation also owns a 44.5% interest in Morguard Real Estate Investment Trust and a 48.7% 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

For further information:


Morguard Corporation

K. (Rai) Sahi
Chief Executive Officer
(905) 281-3800

Paul Miatello
Chief Financial Officer
(905) 281-3800