Morguard Corporation Announces 2014 Third Quarter Results and Regular Eligible Dividend

TSX: MRC

MISSISSAUGA, ON, Nov. 12, 2014 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) announced its financial results for the three months ended September 30, 2014.

HIGHLIGHTS

• Total revenue from real estate properties increased by 4.8% to $116.5 million compared to $111.2 million in 2013.
• Normalized net operating income ("Normalized NOI"), which excludes the impact of IFRIC 21 and land rent arbitration expense, increased by 6.6% to $61.5 million compared to $57.7 million for the same period in 2013.
• Normalized funds from operations ("Normalized FFO"), which excludes non-recurring items, increased by 5.3% to $48.4 million for the quarter ended September 30, 2014 compared to $45.9 million for the same period in 2013.
• Occupancy rates remained relatively steady as compared to September 30, 2013. Combined retail, office and industrial occupancy were 92.2% at September 30, 2014, compared to 93.0% at September 30, 2013. Combined multi-unit residential occupancy was 96.6% at September 30, 2014, compared to 96.1% at September 30, 2013.
• Occupancy commenced at one building (the "North Tower") at The Heathview, a twin-tower, 30 storey, 587 suite residential rental development in Toronto, Ontario.
• Strong leasing activity at the Company's two developments: (1) Performance Court, Ottawa, Ontario is now 83% leased and (2) The Heathview's North Tower is now 46% leased.  
• Morguard entered into a binding agreement to purchase from Morguard REIT the remaining 50% interest it does not already own in a mixed-use office and hotel property located at 350 Sparks Street and 361 Queen Street, Ottawa, Ontario for a purchase price of $37,692. The acquisition is anticipated to close in the fourth quarter of 2014.

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

FINANCIAL HIGHLIGHTS

	Three months ended September 30		Nine months ended September 30
(in thousands of dollars)	2014	2013	2014	2013
Revenue from income producing properties	$116,533	$111,199	$351,292	$305,211
Management and advisory fees	21,315	18,953	53,814	51,109
Interest and other	3,404	2,528	10,694	9,223
Sales of product and land	1,430	3,174	3,946	11,218
Total revenues	$142,682	$135,854	$419,746	$376,761
Revenue from income producing properties	$116,533	$111,199	$351,292	$305,211
Property operating costs and realty tax expense	(50,508)	(49,464)	(170,672)	(144,645)
Land lease arbitration expense	(2,046)	(2,046)	(6,138)	(22,559)
Net operating income	63,979	59,689	174,482	138,007
IFRIC 21 and land rent arbitration expense	(2,493)	(2,012)	10,805	23,063
Normalized net operating income	$61,486	$57,677	$185,287	$161,070
Consolidated funds from operations (FFO)	$48,356	$52,247	$126,794	$126,368
Per share – basic and diluted	$3.87	$4.13	$10.11	$9.94
Normalized FFO	$48,356	$45,930	$135,555	$127,088
Per share – basic and diluted	$3.87	$3.63	$10.81	$9.99
Net income attributable to common shareholders	$61,109	$68,168	$119,880	$190,715
Per share – basic and diluted	$4.90	$5.38	$9.56	$15.00

NET INCOME

The Company's net income attributable to common shareholders for the three months ended September 30, 2014, was $61,109 ($4.90 per share) compared to $68,168 ($5.38 per share) for the same period in 2013. The decrease in net income of $7,059 for the three months ended September 30, 2014, was primarily due to a decrease in fair value gains of $6,542, a decrease in equity income from investments of $5,409, an increase in interest expense of $1,600, an increase in property management and corporate expenses of $1,369, and a decrease in net profit from sale of product and land of $634. These items were partially offset by an increase in net operating income of $4,290, an increase in management and advisory fees of $2,362, an increase in interest and other income of $876 and a decrease in income taxes of $1,055.

NET OPERATING INCOME

Three months ended September 30,	2014			2013
(In thousands of dollars)	NOI	Adjustments	Normalized NOI	NOI	Adjustments	Normalized NOI
Net operating income - Canadian properties
Multi-unit residential – Canada	$13,826	$266	$14,092	$13,678	$261	$13,939
Retail – Canada	6,926	1,739	8,665	6,354	1,745	8,099
Office and industrial	10,517	41	10,558	10,279	40	10,319
Hotel	2,804	-	2,804	1,918	-	1,918
	34,073	2,046	36,119	32,229	2,046	34,275
Net operating income – U.S. properties in U.S. dollars
Multi-unit residential – U.S.	20,257	(3,160)	17,097	19,748	(2,905)	16,843
Retail – U.S.	7,153	(994)	6,159	6,703	(1,003)	5,700
	27,410	(4,154)	23,256	26,451	(3,908)	22,543
Exchange amount to Canadian dollars	2,496	(385)	2,111	1,009	(150)	859
Net operating income – U.S. properties in Canadian dollars	29,906	(4,539)	25,367	27,460	(4,058)	23,402
Net operating income	$63,979	($2,493)	$61,486	$59,689	($2,012)	$57,677

NET OPERATING INCOME

Nine months ended September 30,	2014			2013
(In thousands of dollars)	NOI	Adjustments	Normalized NOI	NOI	Adjustments	Normalized NOI
Net operating income - Canadian properties
Multi-unit residential – Canada	$41,168	$798	$41,966	$39,072	$2,928	$42,000
Retail – Canada	20,807	5,217	26,024	7,134	19,181	26,315
Office and industrial	34,716	123	34,839	29,554	450	30,004
Hotel	7,233	-	7,233	3,793	-	3,793
	103,924	6,138	110,062	79,553	22,559	102,112
Net operating income – U.S. properties in U.S. dollars
Multi-unit residential – U.S.	47,248	3,207	50,455	40,316	(271)	40,045
Retail – U.S.	17,342	916	18,258	16,542	934	17,476
	64,590	4,123	68,713	56,858	663	57,521
Exchange amount to Canadian dollars	5,968	544	6,512	1,596	(159)	1,437
Net operating income – U.S. properties in Canadian dollars	70,558	4,667	75,225	58,454	504	58,958
Net operating income	$174,482	$10,805	$185,287	$138,007	$23,063	$161,070

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 land rent arbitration expense. Normalized NOI for the three months ended September 30, 2014, increased by $3.8 million to $61.5 million compared to $57.7 million in 2013, representing an increase of 6.6%.  The increase was predominantly the result of the acquisition of the Canadian multi-unit residential property and the industrial development project completed in 2013 which increased NOI by $0.5 million and higher occupancy levels at a retail centre in Toronto, Ontario ($0.6 million) and from the Company's hotel portfolio.  The change in the foreign exchange rate increased Normalized NOI in 2014 by $1,252.

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 September 30,			Nine months ended September 30,
(In thousands of dollars except for per share amounts)	2014	2013		2014	2013
Net income attributable to common shareholders	$61,109	$68,168		$119,880	$190,715
Items not affecting cash:
Fair value gain on real estate properties	(23,604)	(19,504)		(54,913)	(15,762)
Fair value (gain) loss on Morguard Residential REIT Units, net	(5,374)	(15,993)		17,367	(44,146)
Other fair value gains	(237)	(257)		(822)	(257)
Distribution to Morguard Residential REIT's external unitholders	3,578	3,575		10,732	9,983
Non-controlling interests' share of fair value gain on real estate properties	136	367		49	560
Deferred income taxes	14,812	22,692		32,631	18,166
Depreciation	504	503		1,515	1,004
Equity income from Morguard REIT	(8,965)	(13,994)		(40,392)	(68,716)
Morguard REIT's equity accounted FFO	11,360	10,754		35,045	31,997
Transaction costs incurred on business combination	-	-		-	1,829
Foreign exchange (gain) loss	(859)	-		201	-
Loss (gain) on sale of property	170	(297)		170	(297)
Internal leasing costs	265	291		664	778
Realty tax expense accounted for under IFRIC 21	(4,539)	(4,058)		4,667	504
Consolidated FFO	$48,356	$52,247		$126,794	$126,368
Consolidated FFO per share amounts – basic and diluted	$3.87	$4.13		$10.11	$9.94

Consolidated FFO - Morguard's Share
Consolidated FFO (from above)	$48,356	$52,247	$126,794	$126,368
Less non-controlling interest: Morguard Residential REIT	(5,545)	(5,357)	(16,940)	(12,377)
Consolidated FFO - Morguard's share	$42,811	$46,890	$109,854	$113,991
Per share amounts – basic and diluted	$3.43	$3.70	$8.76	$8.96

For the three months ended September 30, 2014, the Company recorded consolidated FFO of $48,356 ($3.87 per share), compared to $52,247 ($4.13 per share) in 2013. The decrease in consolidated FFO of $3,891, which reflects a 7.5% decrease, is mainly due to an increase in interest expense of $1,600, an increase in property management and corporate expenses of $1,369, a decrease in net profit from sale of product and land of $634, a decrease in other income of $1,199 (net of foreign exchange gain) and an increase in current taxes of $6,825. These items were partially offset by an increase in net operating income excluding the impact of IFRIC 21 of $3,809, an increase in management and advisory fees of $2,362 an increase in Morguard REIT's equity accounted FFO of $606 and an increase in interest and other income of $876. The change in foreign exchange rates had a positive impact on FFO of $670 ($0.05 per share).

Normalized funds from operations ("Normalized FFO"), for the three months ended September 30, 2013 excludes the realization of the current tax recovery of $6,317 recorded in the third quarter of 2013 relating to the land rent arbitration expense. Normalized FFO for the three months ended September 30, 2014 was $48,356 or $3.87 per share versus $45,930 or $3.63 per share for the same period in 2013, which represents an increase in Normalized FFO of $2,426 or 5.3%.  

Morguard's share of consolidated FFO for the Nine months ended September 30, 2014, totalled $109,854 or $8.76 per share, compared to $113,991 or $8.96 per share  in 2013, which represents a decrease of $4,137 or 3.6%.

FOURTH QUARTER DIVIDEND

The board of directors of Morguard Corporation announced today that the fourth quarterly, eligible dividend of 2014 in the amount of $0.15 per common share will be paid on December 31, 2014 to shareholders of record at the close of business on December 15, 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 September 30, 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 16,423 multi-unit residential suites, 1,056 hotel rooms and approximately 7.4 million square feet of commercial leasable space. Morguard Corporation also owns a 44.9% 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

Morguard Corporation: K. (Rai) Sahi, Chief Executive Officer, [phone]; Paul Miatello, Chief Financial Officer, [phone]