Morguard Corporation Announces Third Quarter Results and Regular Dividend



    MISSISSAUGA, ON, Nov. 1 /CNW/ - Morguard Corporation (TSX: MRC) announced
financial results for the three months ended September 30, 2007.

    
    THIRD QUARTER HIGHLIGHTS

    -   Morguard's share of continuing funds from operations was
        $22.9 million or $1.65 per common share (2006-$15.1 million,
        $1.08 per common share).

    -   An additional 520,200 common shares of RPCL were purchased.

    -   CDN$50.3 million of new mortgages were funded with an average
        interest rate of 5.87%.

    -   The Company's acquisition bridge loan was extinguished through a
        final payment of US$6.0 million.

    -   The fourth quarter dividend was declared in the amount of $0.14 per
        common share.

    -   Further financial highlights are detailed in the table below:

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                    September 30th           September 30th
    -------------------------------------------------------------------------
    (In thousands of                2007        2006        2007        2006
     Canadian dollars,
     except per share amounts)
    -------------------------------------------------------------------------

    Net operating income         $35,783     $49,807    $103,937    $143,619
    Interest expense             (17,856)    (24,473)    (56,823)    (73,279)
    Property management and
     administration              (12,723)    (11,543)    (38,600)    (32,244)
    Equity income from
     Morguard REIT -
     continuing operations         2,187           -       7,327           -
    Fees and other revenue        13,931       9,484      41,111      27,300
    Sale of products and land,
     net of cost                     441         488       1,365       6,326
    -------------------------------------------------------------------------
    Income before the undernoted  21,763      23,763      58,317      71,722
    Amortization                 (19,317)    (14,442)    (58,996)    (44,293)
    Other income (expense)         1,802       2,554      (1,641)     10,606
    -------------------------------------------------------------------------
    Operating income (loss)        4,248      11,875      (2,320)    $38,035
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings                   4,654       4,937       7,941      23,585
    - per basic share               0.33        0.36        0.57        1.69
    - per diluted share             0.33        0.34        0.56        1.31

    Continuing funds from
     operations                   24,814      22,337      58,528      65,689
    - per basic share              $1.78       $1.61       $4.21       $4.71
    - per diluted share            $1.76       $1.58       $4.15       $4.64

    Continuing funds from
     operations - Morguard's
     Share                        22,946      15,077      55,454      44,016
    - per basic share              $1.65       $1.08       $3.98       $3.17
    - per diluted share            $1.63       $1.07       $3.93       $3.12
    -------------------------------------------------------------------------


    REVIEW OF FINANCIAL RESULTS

    The significant changes to the Company's consolidated statement of income
for the three months ended September 30, 2007 relate primarily to a change in
the method of accounting for Morguard Real Estate Investment Trust ("Morguard
REIT") which was effective from October 4, 2006 and the acquisition of Sizeler
Property Investors, Inc. ("Sizeler") that occurred on November 10, 2006.
    As a result of the dilution in the Company's ownership of Morguard REIT,
the Company began accounting for its investment using the equity method of
accounting with effect from October 4, 2006. Consequently, the statements of
earnings and cash flows of the Company consolidate the financials results of
Morguard REIT for the three and nine months ended September 30, 2006 and the
earnings of Morguard REIT are recorded in accordance with the equity method of
accounting for the three and nine months ended September 30, 2007.
    Revenues and expenses generated by the assets and liabilities acquired in
the Sizeler transaction have been included in the Company's consolidated
results for the three and nine months ended September 30, 2007. A decrease in
the Company's net earnings has resulted from an additional $10.4 million of
amortization recorded during the quarter as a result of the Sizeler
acquisition, $5.0 million of additional interest expense, offset by
$9.8 million of additional net operating income ("NOI").
    The table below illustrates the impact to the Company's consolidated
statements of earnings for the periods ended September 30, 2007 and 2006
caused by the events described above by isolating the revenues, expenses, and
equity income of Morguard REIT and Sizeler. The column referred to as
"Remaining Morguard" represents the Company's revenues and expenses that were
unaffected by the changes described above.


    -------------------------------------------------------------------------
                      Three months ended            Three months ended
                         September 30,                 September 30,
                             2007                          2006
                 ------------------------------------------------------------
    (in
     thousands   Remaining                     Remaining  Morguard
     of dollars)  Morguard   Sizeler     Total  Morguard      REIT     Total
    -------------------------------------------------------------------------
    Income from
     properties    $48,550   $15,923   $64,473   $44,878   $43,568   $88,446
    -------------------------------------------------------------------------
    Property
     operating     (22,553)   (6,137)  (28,690)  (21,170)  (17,469)  (38,639)
    -------------------------------------------------------------------------
    Net operating
     income         25,997     9,786    35,783    23,708    26,099    49,807
    -------------------------------------------------------------------------
    Fee and other
     revenue        13,931         -    13,931     9,484         -     9,484
    -------------------------------------------------------------------------
    Sale of
     products        1,805         -     1,805     2,007         -     2,007
    -------------------------------------------------------------------------
    Property
     management
     and admin     (11,916)     (807)  (12,723)  (10,091)   (1,452)  (11,543)
    -------------------------------------------------------------------------
    Cost of sales   (1,364)        -    (1,364)   (1,519)        -    (1,519)
    -------------------------------------------------------------------------
    Earnings
     before the
     undernoted     28,453     8,979    37,432    23,589    24,647    48,236
    -------------------------------------------------------------------------
    Interest       (12,835)   (5,021)  (17,856)  (12,307)  (12,166)  (24,473)
    -------------------------------------------------------------------------
    Equity income
     from Morguard
     REIT            2,187         -     2,187         -         -         -
    -------------------------------------------------------------------------
    Earnings before
     amortization
     and others     17,805     3,958    21,763    11,282    12,481    23,763
    -------------------------------------------------------------------------
    Amortization    (8,927)  (10,390)  (19,317)   (7,893)   (6,549)  (14,442)
    -------------------------------------------------------------------------
    Other income
     (expense)       1,755        22     1,777     3,420      (972)    2,448
    -------------------------------------------------------------------------
    Net dilution
     gain               25         -        25       106         -       106
    -------------------------------------------------------------------------
    Earning (loss) -
     before income
     taxes,
     non-controlling
     interest and
     discontinued
     operations    $10,658   $(6,410)   $4,248    $6,915    $4,960   $11,875
    -------------------------------------------------------------------------

    Net earnings for the three months ended September 30, 2007 were
$4.7 million compared to net earnings of $4.9 million during the same period
in 2006. The Company's net results in 2007 have been impacted by amortization
charges related to the acquisition of Sizeler. The increased amortization is
the result of $101.3 million of in-place lease costs that are being amortized
over the remaining term of the underlying leases. Of the $101.3 million of
in-place lease costs recorded upon the acquisition of Sizeler approximately
$18.3 million was allocated to the apartment community segment. Given the
short-term nature of the leases underlying these assets, the book value of
this asset will be completely amortized during 2007.


    NET OPERATING INCOME

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                     September 30             September 30
                                ---------------------------------------------
    (in thousands
     of dollars)                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Property revenues            $64,473     $88,446    $192,576    $260,387
    Property operating expenses   28,690      38,639      88,639     116,768
    -------------------------------------------------------------------------
    Net operating income         $35,783     $49,807    $103,937    $143,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating income is used by industry analysts, investors and
    management to measure operating performance at the Company's properties.
    Net operating income represents total property revenues less property
    operating expenses and maintenance expenses. Accordingly, net operating
    income excludes certain expenses included in the determination of net
    income such as property management and other indirect operating expenses,
    interest expense and amortization. Net operating income is not a
    recognized measure under Canadian generally accepted accounting
    principles and accordingly the term does not necessarily have a
    standardized meaning and may not be comparable to similarly titled
    measures presented by other publicly traded entities.


    NOI for the three months ended September 30, 2007 decreased to
$35.8 million, compared to $49.8 million for the same period in 2006. The
decrease results primarily from a change in the method of accounting for
Morguard REIT reducing reported NOI by $26.1 million, offset by increased NOI
from Sizeler of $9.8 million. Net operating income contributed by "Remaining
Morguard" increased 9.7% to $26 million in the third quarter of 2007 compared
to $23.7 million in 2006. The increase primarily results from NOI earned at
the Company's newly developed property located at 131 Queen Street in Ottawa,
Ontario contributing $1.6 million to NOI for the three months ended
September 30, 2007 (2006 - 0.5). The Company's properties were 95.5% occupied
as at September 30, 2007 (2006 - 94.7%).

    FUNDS FROM OPERATIONS - MORGUARD'S SHARE

    Funds from continuing operations ("FFO") for the three months ended
September 30, 2007 are detailed in the table below. The consolidated FFO
includes funds available to non-controlling interests. To determine the
Company's share of consolidated FFO, the non controlling interest of Morguard
REIT (2006 only) and RPCL needs to be deducted and any inter-company fees
eliminated on consolidation added.

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                     September 30             September 30
                                ---------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net earnings from continuing
     operations                   $3,953      $4,604     $(1,591)    $22,272
    Add (deduct) non-cash items:
      Non controlling interest    (1,958)      3,212      (8,922)      9,206
      Amortization                19,317      14,442      58,996      44,293
      Future income taxes         (1,104)        185      (1,839)     (4,374)
    Equity income from Morguard
     REIT                         (2,187)          -      (7,327)          -
    Morguard REIT's equity
     accounted FFO                 6,864           -      19,365           -
    Net gain on sale of
     investment                      (46)          -         (46)        (79)
    Net gain on conversion,
     redemption and debentures
     and dilution impact from
     Subsidiaries                    (25)       (106)       (108)     (5,629)
    -------------------------------------------------------------------------
    FFO - Consolidated           $24,814     $22,337     $58,528     $65,689
    LESS: non-controlling
           interest - REIT             -       6,029           -      17,044
          non-controlling
           interest - RPCL         1,868       1,231       3,074       4,629
    -------------------------------------------------------------------------
    FFO - Morguard's Share       $22,946     $15,077     $55,454     $44,016
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The Company uses Funds from Operations ("FFO") and FFO - Morguard's Share
    in addition to net income to report operating results. FFO is an industry
    standard for evaluating operating performance defined as net income plus
    amortization and future income taxes, excludes gains or losses from the
    sale of depreciable property and is not adjusted for gains realized on
    the disposition of portfolio investments. FFO is not indicative of funds
    available to meet the Company's cash requirements. The Company computes
    FFO in accordance with the recently amended definitions of the Real
    Property Association of Canada, formerly known as the Canadian Institute
    of Public and Private Real Estate Companies. However, FFO is not a
    recognized measure under Canadian generally accepted accounting
    principles and accordingly the term does not necessarily have a
    standardized meaning and may not be comparable to similarly titled
    measures presented by other publicly traded entities.
    


    FFO - Morguard's Share for the three months ended September 30, 2007 were
$22.9 million ($1.65 per common share) compared to $15.1 million ($1.08 per
common share) for the same period in 2006. The increase reflects contributions
from the Company's properties as well increased earnings reported by Morguard
Investments Limited, a wholly owned subsidiary, resulting primarily from the
growth of its portfolio of managed properties.

    THIRD QUARTER FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
    ANALYSIS

    The Company's unaudited financial statements for the three months ended
September 30, 2007, along with the Management's Discussion and Analysis are
available on the Company's website at www.morguard.com and have been filed
with SEDAR at www.sedar.com.

    QUARTERLY DIVIDEND

    The board of directors of Morguard Corporation announced today the
quarterly dividend of 2007 in the amount of $0.14 per common share will be
paid on December 31, 2007 to shareholders of record at the close of business
on December 14, 2007.

    %SEDAR: 00004260E




For further information:

For further information: Morguard Corporation: K. (Rai) Sahi, Chief
Executive Officer, (905) 281-3800; Paul Miatello, Chief Financial Officer,
(905) 281-5943


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