Morguard Corporation Announces 2018 Results and Regular Eligible Dividend
MISSISSAUGA, ON, Feb. 21, 2019 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the year ended December 31, 2018.
Reporting Highlights
- Total revenue increased by $44.1 million, or 4.0% to $1,157.9 million for the year ended December 31, 2018, compared to $1,113.8 million for the same period in 2017.
- Net operating income ("NOI") increased by $34.1 million, or 6.6%, to $548.0 million for the year ended December 31, 2018, compared to $513.9 million for the same period in 2017, primarily due to acquisitions completed during and subsequent to the year ended December 31, 2017 and the land rent arbitration settlement.
- Net income decreased by $0.3 million to $344.1 million for the year ended December 31, 2018, compared to $344.4 million for the same period in 2017.
- Funds from operations ("FFO") increased by $7.3 million to $232.4 million, or $20.32 per common share, for the year ended December 31, 2018, compared to $225.1 million, or $18.94 per common share, for the same period in 2017, representing a 3.3% increase.
- Normalized FFO decreased by $7.6 million to $214.8 million for the year ended December 31, 2018, compared to $222.4 million for the same period in 2017, representing a 3.4% decrease.
Operational and Balance Sheet Highlights:
- As at December 31, 2018, the Company's total assets were $11.1 billion compared to $10.1 billion as at December 31, 2017.
- As at December 31, 2018, indebtedness to total assets ratio of 49.6%, as compared to 48.8% as at December 31, 2017.
- Shareholders' equity per common share (excluding non-controlling interest) increased to $303.84 as at December 31, 2018, compared to $260.32 as at December 31, 2017.
- During the year ended December 31, 2018, the Company achieved high and stable occupancy across all asset classes, supporting the Company's business strategy in generating stable and increasing cash flow through its diversified portfolio of real estate assets.
- The Company's financing activity during the year totalled $477.8 million at an average interest rate of 4.11% for an average term of 11.4 years. Repayment on maturity during the year totaled $196.7 million, resulting in $281.1 million of additional mortgage proceeds.
- On May 14, 2018, the Company issued $200.0 million of 4.085% Series D senior unsecured debentures due May 14, 2021.
- On December 10, 2018, the Company fully repaid $135.0 million of 4.099% Series A senior unsecured debentures on maturity.
- On December 28, 2018, the Company completed the re-development of its dual branded Hilton Garden Inn and Homewood Suites by Hilton totalling 346 rooms in downtown Ottawa, Ontario.
- During the year ended December 31, 2018, 515,256 common shares were repurchased through the Company's normal course issuers bid for cash consideration of $92.4 million.
Acquisitions Completed During 2018
The following table presents a summary of the Company's acquisitions totalling $355.5 million during the year ended December 31, 2018.
Property |
Ownership |
Asset |
Location |
Apartment |
Commercial |
Purchase |
|
1100 and 1101 Polytek St. |
100% |
Industrial |
Ottawa, ON |
— |
243,000 |
$43,422 |
|
5985 Explorer Drive |
100% |
Office |
Mississauga, ON |
— |
128,000 |
51,711 |
|
1643 Josephine |
100% |
Residential |
New Orleans, LA |
116 |
— |
14,866 |
|
Santorini Apartments |
100% |
Residential |
Boynton Beach, FL |
226 |
— |
64,176 |
|
Vizcaya Lakes |
100% |
Residential |
Boynton Beach, FL |
126 |
— |
25,892 |
|
41 Rue Victoria (1) |
100% |
Office |
Gatineau, QC |
— |
134,000 |
60,615 |
|
Jean Edmonds Towers |
49.9% |
Office |
Ottawa, ON |
— |
552,000 |
94,854 |
|
468 |
1,057,000 |
$355,536 |
(1)The Company assumed mortgage payable of $32,264 in connection with the acquisition of the property. |
Financial Highlights
For the years ended December 31 |
||
(in thousands of dollars, except per common share) |
2018 |
2017 |
Revenue from real estate |
$841,497 |
$790,535 |
Revenue from hotel properties |
237,938 |
237,116 |
Management and advisory fees |
62,096 |
71,786 |
Interest and other income |
10,947 |
8,907 |
Sales of product and land |
5,400 |
5,430 |
Total revenue |
$1,157,878 |
$1,113,774 |
Revenue from real estate properties |
$841,497 |
$790,535 |
Revenue from hotel properties |
237,938 |
237,116 |
Land rent arbitration settlement |
17,250 |
- |
Property operating expenses |
(368,222) |
(338,070) |
Hotel operating expenses |
(180,488) |
(175,714) |
Net operating income |
$547,975 |
$513,867 |
Net income attributable to common shareholders |
$319,851 |
$310,120 |
Net income per common share – basic and diluted |
$27.96 |
$26.10 |
Funds from operations |
$232,396 |
$225,072 |
FFO per common share – basic and diluted |
$20.32 |
$18.94 |
Normalized funds from operations |
$214,824 |
$222,442 |
Normalized FFO per common share – basic and diluted |
$18.78 |
$18.72 |
Net Income
Net income for the year ended December 31, 2018, was $344.1 million compared to net income of $344.4 million in 2017. The decrease in net income of $0.3 million for the year ended December 31, 2018, was primarily due to the following:
- An increase in net operating income of $34.1 million, primarily due to acquisitions completed during and subsequent to the year ended December 31, 2017 and the land rent arbitration settlement;
- A decrease in management and advisory fees of $9.7 million, primarily due to lower disposition fees earned as well as a decrease in asset management and leasing fees compared to 2017;
- An increase in interest and other income of $2.0 million;
- An increase in interest expense of $18.5 million, mainly due to higher interest on Unsecured Debentures and higher interest on bank indebtedness and mortgages payable mainly from acquisitions completed during and subsequent to the year ended December 31, 2017;
- An increase in property management and corporate expense of $9.8 million;
- An increase in provision for impairment of $5.1 million;
- An increase in non-cash net fair value gain of $27.3 million, primarily due to a higher fair value gain on real estate properties, partly offset by a higher fair value loss on Morguard Residential REIT Units;
- An increase in non-cash equity loss from investments of $12.4 million, primarily due to a higher fair value loss recognized in 2018 compared to 2017;
- An increase in other income of $9.5 million, primarily due to an increase in foreign exchange gain and a gain on recognition on a finance lease; and
- An increase in income taxes (current and deferred) of $16.6 million.
Net Operating Income
NOI increased by $34.1 million, or 6.6%, during the year ended December 31, 2018, to $548.0 million, compared to $513.9 million generated in 2017, and is further analyzed by asset type below.
For the years ended December 31 |
|||||
(in thousands of dollars) |
2018 |
2017 |
|||
Multi-suite residential |
$201,160 |
$184,548 |
|||
Retail |
132,743 |
137,021 |
|||
Office |
129,454 |
123,176 |
|||
Industrial |
9,394 |
6,292 |
|||
Hotels |
57,450 |
61,402 |
|||
Adjusted NOI |
530,201 |
512,439 |
|||
Land rent arbitration settlement |
17,250 |
- |
|||
IFRIC 21 adjustment – multi-suite residential |
498 |
1,428 |
|||
IFRIC 21 adjustment – retail |
26 |
- |
|||
NOI |
$547,975 |
$513,867 |
|||
The increase in NOI of $34.1 million is due to the land rent arbitration settlement of $17.2 million, a decrease in the IFRIC 21 adjustment of $0.9 million and the change in Adjusted NOI described below.
Adjusted NOI for the year ended December 31, 2018, increased by $17.8 million to $530.2 million compared to $512.4 million in 2017 primarily due to the following:
- An increase in the Canadian residential portfolio of $4.5 million primarily resulting from an increase of $3.8 million from rental rate growth, improved occupancy and lower operating expenses and additional NOI of $0.7 million generated from the Downsview Townhomes which reached stabilized occupancy on December 31, 2017;
- An increase in U.S. residential NOI of US$9.5 million predominantly resulting from an increase of $10.0 million due to the acquisition of five residential properties in the U.S. during and subsequent to the third quarter of 2017, partially offset by a decrease of US$2.8 million due to sale of four residential properties located in Mobile, Alabama, during the third quarter of 2017. In addition, NOI increase of $2.3 million primarily from rental rate growth, partially offset by an increase in vacancy and operating expenses at three properties;
- A decrease of $4.3 million in Canadian retail properties resulting from lower occupancy ($9.1 million), lower base rent, higher non-recoverable operating expenses and lower recoveries primarily at four properties and a tax refund received at a property in Toronto, Ontario in 2017 for prior periods, partially offset by an increase of $4.8 million from higher occupancy, higher base rent and lower non-recoverable operating expenses primarily at three properties;
- An increase in the office portfolio of $6.3 million primarily due to acquisition of six properties during and subsequent to the third quarter of 2017, which resulted in an increase of $8.6 million, partially offset by a decrease of $1.8 million due to lower base rent, lower recoveries and higher non-recoverable operating expenses at the remaining Canadian office properties and a decrease of $0.5 million from lower lease cancellation fees;
- An increase in the industrial portfolio of $3.1 million primarily due to the acquisition of 1100 and 1101 Polytek Street in Ottawa, Ontario, during 2018, as well as improved occupancy and an increase in lease cancellation fees received in 2018;
- A decrease in the hotel portfolio by $4.0 million mainly due to increased vacancy as a result of renovations at two hotels located near Toronto's Pearson Airport, increased vacancy primarily at hotels located in Fort McMurray, Alberta hotels, including the expiry of a long-term lease at the Cortona Residence and a decrease of $0.5 million due to the sale of a hotel during the third quarter of 2017, partially offset due to stronger average room rates, improved occupancy and reduced costs at hotels located mainly in Ontario and Nova Scotia; and
- An increase of $2.8 million due to the change in the U.S. dollar foreign exchange rate.
Funds From Operations
For the year ended December 31, 2018, the Company recorded FFO of $232.4 million ($20.32 per common share), compared to $225.1 million ($18.94 per common share) in 2017. The increase in FFO of $7.3 million is mainly due to the following:
- An increase in Adjusted NOI of $17.8 million, primarily due to the acquisition of properties;
- An increase of $17.2 million due to the reversal of land rent expense relating to a land arbitration settlement;
- A decrease in management and advisory fees of $9.7 million, primarily due to lower disposition fees earned;
- An increase in interest expense of $18.5 million, primarily due to higher interest on Unsecured Debentures and on the financing of acquisitions;
- An increase in property management and corporate expense of $9.8 million;
- A decrease in current income taxes of $5.4 million;
- A decrease in the non-controlling interests' share of FFO of $2.9 million; and
- An increase due to a gain of $2.7 million on the recognition of a finance lease.
The change in foreign exchange rates had a positive impact on FFO of $0.1 million ($0.01 per common share).
Normalized FFO for the year ended December 31, 2018, was $214.8 million, or $18.78 per common share, versus $222.4 million, or $18.72 per common share, for the same period in 2017, which represents a decrease of
$7.6 million or 3.4%. Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.
Financing Activity
The following summarizes the Company's financing activities during the year ended December 31, 2018:
- New mortgage financing of $185.8 million at an average interest rate of 3.94% for an average term of 14.4 years.
- Refinancing of mortgages of $292.0 million at an average interest rate of 4.22% for an average term of 9.5 years as compared to $158.0 million of maturing mortgages at an average interest rate of 4.37%, resulting in additional mortgage proceeds of $134.0 million.
- Repayment of mortgages of $38.7 million at an average interest rate of 5.15%.
Subsequent Events
On January 25, 2019, the Company issued $225.0 million of 4.715% Series E senior unsecured debentures due on January 25, 2024. Interest on the Series E unsecured debentures is payable semi-annually, not in advance, on January 25 and July 25 of each year commencing on July 25, 2019. Paros, a related party, purchased $12.5 million aggregate principal amount of the Series E unsecured debentures.
Subsequent to December 31, 2018, the Company repaid $199.0 million under its operating lines of credit.
Subsequent to December 31, 2018, the Company acquired 3,300, common shares under its NCIB for cash consideration of $0.6 million.
On February 1, 2019, the Company sold a property located in Shreveport, Louisiana, comprising 194 suites, for gross proceeds of $13.8 million (US$10,5 million) and the purchaser assumed the mortgage secured by the property in the amount of $7.0 million (US$5.3 million).
First Quarter Dividend
The Board of Directors of Morguard Corporation announced that the first quarterly, eligible dividend of 2019 in the amount of $0.15 per common share will be paid on March 29, 2019, to shareholders of record at the close of business on March 15, 2019.
The Company's audited financial statements for the year ended December 31, 2018, 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 year ended December 31, 2018 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 $21.0 billion. Morguard owns a diversified portfolio of 214 multi-suite residential, retail, office, industrial and hotel properties comprised of 18,481 residential suites, approximately 17.2 million square feet of commercial leasable space and 5,903 hotel rooms. Morguard also currently owns a 57.6% 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 58.7% 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
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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