Morguard Corporation Announces 2018 Second Quarter Results and Regular Eligible Dividend
MISSISSAUGA, ON, Aug. 8, 2018 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the three and six months ended June 30, 2018.
Reporting Highlights
- Total revenue increased by $12.0 million to $287.7 million for the three months ended June 30, 2018, compared to $275.7 million for the same period in 2017.
- Net operating income ("NOI") increased by $25.5 million, or 18.9%, to $160.2 million for the three months ended June 30, 2018, compared to $134.7 million for the same period in 2017.
- Fair value gain on real estate properties decreased by $87.2 million to $72.0 million for the three months ended June 30, 2018, compared to $159.2 million for the same period in 2017.
- Net income decreased by $83.7 million to $95.9 million for the three months ended June 30, 2018, compared to $179.6 million for the same period in 2017.
- Funds from operations ("FFO") increased by $19.7 million to $73.1 million, for the three months ended June 30, 2018, compared to $53.4 million, for the same period in 2017, representing a 36.9% increase.
- FFO per share increased by $1.90 per share to $6.39 per share, for the three months ended June 30, 2018 compared to $4.49 per share, for the same period in 2017, representing a 42.3% increase.
Operational and Balance Sheet Highlights:
- On May 14, 2018, the Company issued $200.0 million (net proceeds including closing costs - $198.8 million) of 4.085% Series D senior unsecured debentures due May 14, 2021.
- Shareholders' equity per common share (excluding non-controlling interest) increased to $285.79 compared to $260.32 as at December 31, 2017.
- During the three months ended June 30, 2018, 16,200 common shares were repurchased through the Company's NCIB for cash consideration of $2.7 million.
- As at June 30, 2018, occupancy was consistent 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.
- On April 27, 2018, the Company reached an agreement on the fair market value of the land underlying a mixed-use property located in Toronto, Ontario, for the period from July 1, 2010 through June 30, 2030 that resulted in the annual land rent increasing from $2.8 million to $8.8 million. The Company settled and paid an amount of $15.8 million for arrears of rent and interest from July 1, 2010 to April 30, 2018 and reversed $17.3 million (pre-tax) of land rent previously expensed.
Acquisitions Completed During the Second Quarter of 2018
The following table presents a summary of the company's acquisitions totalling $104.8 million during the three months ended June 30, 2018.
| Property |
Date of Acquisition |
Asset Type |
Location |
Purchase Price (in thousands |
| Papilllon Apartments |
April 5, 2018 |
Residential |
New Orleans, LA |
$14,866 |
| Santorini Apartments |
June 18, 2018 |
Residential |
Boynton Beach, FL |
64,176 |
| Vizcaya Lakes |
June 20, 2018 |
Residential |
Boynton Beach, FL |
25,748 |
| $104,790 |
Papillon Apartments is a 116 suites residential property located in the Garden District in New Orleans, Louisiana. The property is within close proximity to The Georgian, the Company's 135 suite mid-rise apartment complex and nearby Tulane and Loyola universities. The property is currently vacant and is designated as a property under development. This acquisition allows the Company to increase its presence in the immediate area and to benefit from management efficiencies between the two properties.
Santorini Apartments is a newly-constructed residential property comprising 226 suites in two 6-storey buildings with a separate 5-storey parking garage that has covered walkways to each building. The buildings are located in Renaissance Commons, the premier mixed-use planned urban development in Boynton Beach, Florida. The property is within 15 minutes of Palm Beach's two major employment centers - downtown West Palm Beach and Boca Raton.
Vizcaya Lakes is a newly-constructed residential property comprising 125 suites within a Class A, 328 suite condominium complex, which consists of two 6-storey buildings located in Boynton Beach, Florida. The property is adjacent to Santorini Apartments.
Financial Highlights
| Three months ended June 30 |
Six months ended June 30 |
|||
| (in thousands of dollars, except per common share) |
2018 |
2017 |
2018 |
2017 |
| Revenue from real estate |
$207,061 |
$194,422 |
$410,900 |
$390,940 |
| Revenue from hotel properties |
61,997 |
62,142 |
115,849 |
114,397 |
| Management and advisory fees |
14,401 |
15,368 |
28,838 |
34,332 |
| Interest and other income |
2,880 |
2,570 |
4,320 |
4,530 |
| Sales of product and land |
1,386 |
1,198 |
2,636 |
2,440 |
| Total revenue |
$287,725 |
$275,700 |
$562,543 |
$546,639 |
| Revenue from real estate properties |
$207,061 |
$194,422 |
$410,900 |
$390,940 |
| Revenue from hotel properties |
61,997 |
62,142 |
115,849 |
114,397 |
| Land rent arbitration settlement |
17,250 |
- |
17,250 |
- |
| Property operating expenses |
(81,470) |
(78,208) |
(196,646) |
(183,978) |
| Hotel operating expenses |
(44,603) |
(43,619) |
(87,373) |
(85,529) |
| Net operating income |
$160,235 |
$134,737 |
$259,980 |
$235,830 |
| Net income attributable to common shareholders |
$75,604 |
$151,526 |
$192,212 |
$167,268 |
| Net income per common share – basic and diluted |
$6.62 |
$12.72 |
$16.72 |
$14.04 |
| Funds from operations |
$73,166 |
$53,527 |
$123,077 |
$101,028 |
| FFO per common share – basic and diluted |
$6.39 |
$4.49 |
$10.71 |
$8.48 |
Net Income
Net income for the three months ended June 30, 2018, was $95.9 million compared to net income of $179.6 million in 2017. The decrease in net income of $83.7 million for the three months ended June 30, 2018, was primarily due to the following:
- An increase in net operating income of $25.5 million primarily due to the land rent arbitration settlement;
- A decrease in management and advisory fees of $1.0 million;
- An increase in the interest expense of $5.0 million;
- An increase in property management and corporate expense of $1.5 million;
- An increase in impairment provision of $6.7 million;
- A decrease in non-cash net fair value gain of $106.5 million;
- A decrease in equity income from investments of $9.7 million;
- An increase in other income of $2.1 million; and
- A decrease in income taxes (current and deferred) of $18.9 million.
Net Operating Income
NOI increased by $25.5 million, or 18.9%, during the three months ended June 30, 2018, to $160.2 million, compared to $134.7 million generated in 2017, and is further analyzed by asset type below.
| Three months ended |
Six months ended June 30 |
|||
| (in thousands of dollars) |
2018 |
2017 |
2018 |
2017 |
| Multi-suite residential |
$51,111 |
$46,505 |
$98,506 |
$90,615 |
| Retail |
32,487 |
32,110 |
64,123 |
64,721 |
| Office |
31,457 |
29,751 |
62,346 |
61,638 |
| Industrial |
2,736 |
1,619 |
5,002 |
3,223 |
| Hotels |
17,394 |
18,523 |
28,476 |
28,868 |
| Adjusted NOI |
135,185 |
128,508 |
258,453 |
249,065 |
| Land rent arbitration settlement |
17,250 |
- |
17,250 |
- |
| IFRIC 21 adjustment – multi-suite residential |
6,580 |
4,986 |
(13,093) |
(10,646) |
| IFRIC 21 adjustment – retail |
1,220 |
1,243 |
(2,630) |
(2,589) |
| NOI |
$160,235 |
$134,737 |
$259,980 |
$235,830 |
NOI for the three months ended June 30, 2018, increased by $17.3 million due to the land rent arbitration settlement which resulted in a reversal of $17.3 million of previously expensed land rent for the period from July 1, 2010 to April 30, 2018.
Adjusted NOI for the three months ended June 30, 2018, increased by $6.7 million to $135.2 million compared to $128.5 million in 2017 primarily due to the following:
- An increase in the Canadian residential portfolio of $0.9 million primarily from rental rate growth, improved occupancy and lower operating expenses;
- An increase in NOI of US$2.9 million primarily due to the acquisition of three residential properties in the U.S. during the third quarter of 2017 with NOI of US$4.3 million, partially offset by a decrease of US$1.4 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$0.7 million primarily due to an increased occupancy and rental growth at a properties located in US;
- An increase of $0.8 million in Canadian retail properties due to increased occupancy, lower base rate, lower non-recoverable operating expenses primarily at three properties of $1.7 million which was partially offset by a decrease of $1.3 million due to increased vacancy, lower base rent, higher non-recoverable operating expenses and lower recoveries at two properties;
- An increase in the office portfolio of $1.7 million primarily due to acquisitions completed during 2017 and first quarter of 2018 which generated $2.3 million, an increase of $0.2 million due to lease cancellation fees received from a tenant located in Calgary, Alberta, partially offset by increased vacancy, lower recoveries and higher non-recoverable operating expenses of $0.8 million;
- An increase in the industrial portfolio of $1.1 million is primarily due to acquisition of a property during the first quarter of 2018 that contributed $0.6 million and an increase of $0.5 million due to lease cancellation fee received from a tenant at a property located in Ottawa, Ontario;
- A decrease in the hotel portfolio of $1.1 million is mainly due to increased vacancy as a result of renovations at two hotels located near Toronto's Pearson Airport and sale of a hotel during the third quarter of 2017 partially offset by stronger average room rates, improved occupancy and reduced costs at one hotel near Toronto's Pearson Airport; and
- A decrease of $0.2 million due to the change in the U.S. dollar foreign exchange rate.
Funds From Operations
For the three months ended June 30, 2018, the Company recorded FFO of $73.1 million ($6.39 per common share), compared to $53.4 million ($4.49 per common share) in 2017. The increase in FFO of $19.7 million is mainly due to the following:
- An increase in NOI of $6.7 million, primarily due to the acquisition of properties;
- An increase of $17.3 million due to the reversal of land rent expense relating to the land rent arbitration settlement;
- A decrease in management and advisory fees of $1.0 million;
- An increase in interest expense of $5.0 million, primarily due to higher interest on Unsecured Debentures, bank indebtedness and on the financing of acquisitions;
- An increase in property management and corporate expense of $1.5 million;
- A decrease in the non-controlling interest's share of FFO of $1.5 million;
- An unrealized fair value gain on financial instruments of $0.8 million;
- An increase due to a gain of $2.7 million on the recognition of a finance lease during the second quarter of 2018; and
- A decrease in other income of $1.5 million.
The change in foreign exchange rates had a negative impact on FFO of $0.5 million ($0.05 per common share).
Normalized FFO for the three months ended June 30, 2018, was $57.4 million, or $5.01 per common share, versus $52.3 million, or $4.39 per common share, for the same period in 2017, which represents an increase of $5.1 million, or 9.8%. Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.
Third Quarter Dividend
The Board of Directors of Morguard Corporation announced that the third quarterly, eligible dividend of 2018 in the amount of $0.15 per common share will be paid on September 28, 2018, to shareholders of record at the close of business on September 14, 2018.
The Company's unaudited condensed consolidated financial statements for the three and six months ended June 30, 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 condensed 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 six months ended June 30, 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 $21.7 billion. Morguard owns a diversified portfolio of 212 multi-suite residential, retail, office, industrial and hotel properties comprised of 18,480 residential suites, approximately 16.7 million square feet of commercial leasable space and 5,557 hotel rooms. Morguard also currently owns a 56.0% 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
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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