Morguard Corporation Announces 2017 Third Quarter Results and Regular Eligible Dividend
MISSISSAUGA, ON, Nov. 9, 2017 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the three and nine months ended September 30, 2017.
Third Quarter Operational Highlights:
On September 15, 2017, the Company issued $200.0 million (net proceeds including closing costs - $198.8 million) of 4.333% Series C senior unsecured debentures due September 15, 2022.
On July 6, 2017, the Company acquired a residential property comprising 104 suites and approximately 33,000 square feet of commercial area located in Falls Church, Virginia, for a purchase price of $56.1 million (US$43.3 million), including closing costs.
On July 10, 2017, the Company acquired a residential property comprising 515 suites and approximately 20,000 square feet of commercial area located in Chicago, Illinois, for a purchase price of $291.7 million (US$226.3 million), including closing costs. The acquisition was partially financed by a new mortgage in the amount of $157.9 million (US$122.5 million) at an interest rate of 3.49% for a term of eight years. On October 2, 2017, the Company sold a 49% interest in the property to an institutional partner for $63.5 million (US$50.8 million).
On July 12, 2017, the Company sold four U.S. residential properties located in Mobile, Alabama, comprising 1,329 suites, for net proceeds of $88.7 million (US$69.3 million).
On August 3, 2017, the Company acquired an office property consisting of approximately 203,500 square feet of commercial area located in Markham, Ontario, for a purchase price of $67.9 million, including closing costs.
On August 17, 2017, the Company acquired an office property consisting of approximately 74,500 square feet of commercial area located in Oakville, Ontario, for a purchase price of $19.0 million, including closing costs.
On August 17, 2017, the Company acquired a residential property comprising 492 suites located in Rockville, Maryland, for a purchase price of $166.3 million (US$131.5 million), including closing costs.
On September 15, 2017, the Company sold the Holiday Inn Express, Sherwood Park, Alberta, for gross proceeds of $9.7 million.
On September 21, 2017, The Company acquired an office property consisting of approximately 106,500 square feet of commercial area located in Ottawa, Ontario, for a purchase price of $22.0 million, including closing costs.
Third Quarter Reporting Highlights
- Total revenue increased by $49.3 million to $279.6 million for the three months ended September 30, 2017, compared to $230.3 million for the same period in 2016.
- Net operating income ("NOI") increased by $18.5 million, or 15.4%, to $138.4 million for the three months ended September 30, 2017, compared to $119.9 million for the same period in 2016, primarily due to the consolidation of Temple commencing on January 1, 2017.
- Funds from operations ("FFO") increased by $1.9 million to $55.4 million, or $4.67 per share, for the three months ended September 30, 2017, compared to $53.5 million, or $4.49 per share, for the same period in 2016, representing a 3.6% increase.
- Normalized FFO increased by $1.8 million to $55.4 million for the three months ended September 30, 2017, compared to $53.6 million for the same period in 2016, representing a 3.3% increase.
- Shareholders' equity per common share (excluding non-controlling interest) increased to $250.10 compared to $239.98 as at December 31, 2016.
Financial Highlights
| Three months ended |
Nine months ended |
|||
| (in thousands of dollars, except per common share) |
2017 |
2016 |
2017 |
2016 |
| Revenue from real estate |
$195,167 |
$192,730 |
$586,107 |
$580,391 |
| Revenue from hotel properties |
65,431 |
19,548 |
179,828 |
50,772 |
| Management and advisory fees |
15,728 |
15,262 |
50,060 |
49,846 |
| Interest and other income |
1,870 |
1,626 |
6,400 |
4,895 |
| Sales of product and land |
1,416 |
1,171 |
3,856 |
4,230 |
| Total revenues |
$279,612 |
$230,337 |
$826,251 |
$690,134 |
| Revenue from real estate properties |
$195,167 |
$192,730 |
$586,107 |
$580,391 |
| Revenue from hotel properties |
65,431 |
19,548 |
179,828 |
50,772 |
| Property operating expenses |
(78,408) |
(78,656) |
(262,386) |
(262,066) |
| Hotel operating expenses |
(43,816) |
(13,760) |
(129,345) |
(38,757) |
| Net operating income |
$138,374 |
$119,862 |
$374,204 |
$330,340 |
| Net income attributable to common shareholders |
$27,552 |
$63,403 |
$194,820 |
$138,051 |
| Net income per common share – basic and diluted |
$2.33 |
$5.31 |
$16.37 |
$11.56 |
| Funds from operations |
$55,448 |
$53,545 |
$156,476 |
$160,215 |
| FFO per common share – basic and diluted |
$4.67 |
$4.49 |
$13.15 |
$13.41 |
| Normalized funds from operations |
$55,448 |
$53,659 |
$154,464 |
$145,582 |
| Normalized FFO per common share – basic and diluted |
$4.67 |
$4.50 |
$12.98 |
$12.19 |
Net Income
Net income for the three months ended September 30, 2017, was $23.3 million compared to net income of $70.5 million in 2016. The decrease in net income of $47.2 million for the three months ended September 30, 2017, was primarily due to the following:
- An increase in net operating income of $18.5 million, primarily due to the consolidation of Temple;
- An increase in interest expense of $10.7 million, primarily due to the consolidation of Temple;
- An increase in amortization of hotel properties of $5.2 million, primarily due to the consolidation of Temple;
- A decrease in net fair value gain of $62.0 million primarily due to a fair value loss recorded at one office property located in Calgary, Alberta, during the three months ended September 30, 2017;
- A decrease in equity income from investments of $8.8 million, primarily due to a fair value change during the current and prior period;
- An increase in other income of $2.2 million, primarily due to a foreign exchange gain; and
- A decrease in income taxes (current and deferred) of $18.0 million.
Net Operating Income
NOI increased by $18.5 million, or 15.4%, during the three months ended September 30, 2017, to $138.4 million, compared to $119.9 million generated in 2016, and is further analyzed by asset type below.
| Three months ended |
Nine months ended |
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| (in thousands of dollars) |
2017 |
2016 |
2017 |
2016 |
|
| Multi-suite residential |
$46,884 |
$42,497 |
$137,499 |
$125,539 |
|
| Retail |
31,530 |
34,416 |
96,251 |
104,425 |
|
| Office |
29,865 |
29,471 |
91,503 |
89,990 |
|
| Industrial |
1,546 |
1,785 |
4,769 |
5,312 |
|
| Hotels |
21,615 |
5,788 |
50,483 |
12,015 |
|
| Adjusted NOI |
131,440 |
113,957 |
380,505 |
337,281 |
|
| IFRIC 21 adjustment – multi-suite residential |
5,735 |
4,685 |
(4,911) |
(5,585) |
|
| IFRIC 21 adjustment – retail |
1,199 |
1,220 |
(1,390) |
(1,356) |
|
| NOI |
$138,374 |
$119,862 |
$374,204 |
$330,340 |
|
The increase in NOI of $18.5 million is due to an increase in IFRIC 21 adjustment of $1.0 million and the change in Adjusted NOI described below.
Adjusted NOI for the three months ended September 30, 2017, increased by $17.5 million to $131.5 million compared to $114.0 million in 2016 primarily due to the following:
- An increase in the Canadian residential portfolio of $2.0 million primarily from rental rate growth, improved occupancy and lower operating expenses;
- Additional NOI of $0.6 million generated from The Heathview, a 587 suite luxury residential property located in Toronto, Ontario. During 2016, The Heathview was under initial lease up;
- An increase in NOI of US$3.2 million due to the acquisition of three residential properties in the U.S. during the third quarter, partially offset by a decrease of US$1.2 million due to sale of four residential properties located in Mobile, Alabama on July 12, 2017;
- An increase in the U.S. residential portfolio of US$0.3 million primarily from rental rate growth, partially offset by an increase in vacancy and operating expenses;
- A decrease of $2.0 million in Canadian and US$0.5 million in U.S. retail properties due to lower base rent and recoveries, increased vacancy at two U.S. properties and temporary vacancy at a property located in Toronto, Ontario;
- An increase in the office portfolio of $0.4 million is primarily due to acquisition of two properties during the third quarter, improved occupancy at a property located in Calgary, Alberta, partially offset by a decrease due to increased vacancy and lower recoveries;
- A decrease in the industrial portfolio by $0.2 million is due to increased vacancy at two industrial properties;
- An increase in the hotel portfolio by $15.8 million is mainly due to the consolidation of Temple and stronger average room rates, improved occupancy and reduced costs within the remainder of the portfolio; and
- A decrease of $0.8 million due to the change in the U.S. dollar foreign exchange rate.
Funds From Operations
For the three months ended September 30, 2017, the Company recorded FFO of $55.4 million ($4.67 per common share), compared to $53.5 million ($4.49 per common share) in 2016. The increase in FFO of $1.9 million is mainly due to the following:
- Higher Adjusted NOI of $17.5 million, primarily due to the consolidation of Temple and from the acquisition of properties;
- Higher management and advisory fees of $0.5 million;
- A decrease in equity-accounted FFO of $0.9 million;
- An increase in interest expense of $10.7 million, primarily due to the consolidation of Temple and from mortgage financing on acquisitions as well as higher interest on Unsecured Debentures;
- Higher property management and corporate expense of $0.3 million;
- A decrease in internal leasing costs of $1.0 million;
- An increase in current taxes of $1.6 million; and
- Higher non-controlling interest's share of FFO of $2.1 million;
The change in foreign exchange rates had a negative impact on FFO of $0.6 million ($0.05 per common share).
Normalized FFO for the three months ended September 30, 2017, was $55.4 million, or $4.67 per common share, versus $53.6 million, or $4.50 per common share, for the same period in 2016, which represents an increase of $1.8 million or 3.3%. Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.
Financing Activity
The following is the Company's financing activities during the three months ended September 30, 2017.
- On July 6, 2017, the Company completed the financing of a residential property located in Falls Church, Virginia, in the amount of $30.6 million (US$23.7 million) at an interest rate of 4.05% for a term of 12.25 years.
- On July 10, 2017, the Company completed the financing of a residential property in Chicago, Illinois, in the amount of $157.9 million (US$122.5 million) at an interest rate of 3.49% for a term of eight years.
- On August 14, 2017, the Company completed the refinancing of three hotel properties in the amount of $36.3 million at an interest rate of 5.20% for a term of five years.
- On August 17, 2017, the Company completed the financing of a residential property in Rockville, Maryland, in the amount of $88.5 million (US$71.0 million) at an interest rate of 3.55% for a term of 10 years.
- On August 30, 2017, the company completed the refinancing of an office property located in Victoria, British Columbia, for $38.0 million at an interest rate of 3.68% for a term of 10 years.
- On September 29, 2017, the Company fully repaid, without penalty, three mortgages secured by three U.S. retail properties totaling $83.7 million (US$67.1 million).
Subsequent Events
Subsequent to September 30, 2017, the Company repaid a net amount of US$51.0 million and $10.0 million of bank indebtedness under its credit facilities and lines of credit.
Subsequent to September 30, 2017, the Company acquired 73,500 units of Morguard REIT for cash consideration of $1.1 million.
Fourth Quarter Dividend
The Board of Directors of Morguard Corporation announced that the fourth quarterly, eligible dividend of 2017 in the amount of $0.15 per common share will be paid on December 29, 2017, to shareholders of record at the close of business on December 15, 2017.
The Company's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017, 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, 2017 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 $22.0 billion. Morguard owns a diversified portfolio of 208 multi-suite residential, retail, office, industrial and hotel properties comprised of 18,129 residential suites, approximately 16.5 million square feet of commercial leasable space and 5,557 hotel rooms. Morguard also currently owns a 54.1% interest in Morguard Real Estate Investment Trust ("Morguard REIT" or "MRT"), a 46.9% effective interest in Morguard North American Residential Real Estate Investment Trust ("Morguard Residential REIT" or "MRG") and a 55.9% effective interest in Temple Hotels Inc. ("Temple"). 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, T 905-281-3800; Paul Miatello, Chief Financial Officer, T 905-281-3800
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