Morguard Real Estate Investment Trust Announces 2020 Annual Results and 50% Reduction in Distribution
MISSISSAUGA, ON, Feb. 17, 2021 /CNW/ - Morguard Real Estate Investment Trust ("the Trust") (TSX: MRT.UN) today is pleased to announce its 2020 Annual Results. These results have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The Trust is also announcing a 50% reduction in the monthly distribution from 4 cents per unit to 2 cents per unit (or from 48 cents to 24 cents on an annual basis). The Trust has declared a distribution of 2 cents per unit for the month of February 2021. The distribution will be payable on March 15, 2021 to unitholders of record as at February 26, 2021. Also included is a brief operational update as the Trust continues to focus on managing through the COVID-19 pandemic and the resulting economic impact.
Financial Highlights |
Three Months Ended December 31 |
Year Ended December 31 |
||
In thousands of dollars, except per-unit |
2020 |
2019 |
2020 |
2019 |
Revenue from real estate properties |
$67,495 |
$69,249 |
$253,764 |
$273,074 |
Net operating income |
33,253 |
38,757 |
123,778 |
149,961 |
Fair value losses on real estate properties |
(85,804) |
(28,640) |
(419,766) |
(73,850) |
Net (loss)/income |
(67,934) |
(3,628) |
(357,419) |
14,840 |
Funds from operations |
19,447 |
24,088 |
66,924 |
90,894 |
Adjusted funds from operations 1 |
16,350 |
17,570 |
51,564 |
66,063 |
Amounts presented on a per unit basis |
||||
Net (loss)/income – basic |
($1.07) |
($0.06) |
($5.75) |
$0.24 |
Net (loss)/income – diluted |
($1.07) |
($0.06) |
($5.75) |
$0.24 |
Funds from operations – basic |
$0.31 |
$0.40 |
$1.08 |
$1.50 |
Funds from operations – diluted |
$0.30 |
$0.38 |
$1.06 |
$1.43 |
Adjusted funds from operations – basic |
$0.26 |
$0.29 |
$0.83 |
$1.09 |
Adjusted funds from operations – diluted |
$0.25 |
$0.28 |
$0.83 |
$1.07 |
Distributions per unit |
$0.12 |
$0.24 |
$0.64 |
$0.96 |
Payout ratio - Adjusted funds from operations |
46.2% |
82.8% |
77.1% |
88.1% |
CONSOLIDATED OPERATING HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2020
Revenue from real estate properties includes contracted rent from tenants along with recoveries of property expenses (including property taxes).
The following is an analysis of revenue from real estate properties by segment:
For the year ended December 31, |
2020 |
2019 |
|
Industrial |
$3,479 |
$4,328 |
|
Office – Single-/dual-tenant buildings |
80,392 |
89,546 |
|
Office – Multi-tenant buildings |
29,787 |
31,060 |
|
Retail – Community strip centres |
37,701 |
37,861 |
|
Retail – Enclosed regional centres |
102,405 |
110,279 |
|
Total |
$253,764 |
$273,074 |
The decline in industrial revenue is due to the sale of an industrial asset in Quebec on July 31, 2019.
On March 30, 2020, the Trust announced the conclusion of its discussions with Obsidian Energy Ltd. regarding its tenancy in Penn West Plaza (a single-tenant building). This future rent reduction represents an annual reduction in the Trust's net operating income of approximately $7.0 million.
The decline in enclosed regional centres revenue is due to the enclosed mall tenant failures and restructured rent arrangements provided to tenants that are struggling as part of the COVID-19 pandemic.
The following is an analysis of revenue and bad debt expense for the year ended December 31, 2020:
Year ended December 31, 2020 |
Retail |
Office |
Industrial |
Total |
Revenue from real estate properties |
$140,106 |
$110,179 |
$3,479 |
$253,764 |
Bad debt expense |
13,052 |
1,636 |
169 |
14,857 |
% of revenue from real estate properties |
9% |
1% |
5% |
6% |
The following is an analysis of revenue and bad debt expense for the year ended December 31, 2019:
Year ended December 31, 2019 |
Retail |
Office |
Industrial |
Total |
Revenue from real estate properties |
$148,140 |
$120,606 |
$4,328 |
$273,074 |
Bad debt expense |
538 |
138 |
— |
676 |
% of revenue from real estate properties |
—% |
—% |
—% |
—% |
Property operating expenses include costs related to interior and exterior maintenance, insurance, and utilities.
Property operating expenses (excluding bad debt expense) for the year ended December 31, 2020, decreased 10.3% to $59.3 million from $66.1 million for the same period in 2019. This decrease is primarily due to lower operating and repair and maintenance expenses in 2020 due to less traffic in the retail and office assets during the COVID-19 pandemic.
Net operating income for the year ended December 31, 2020, declined 17.5% as compared to 2019. This decline was due to bad debt expense recorded for the year in addition to the decline in income for Penn West Plaza relating to the rent reduction offered to Obsidian Energy Ltd.
Interest expense for the year ended December 31, 2020, decreased 2.8% to $56.4 million from $58.0 million for the same period in 2019. This decline is primarily due to the low interest rate environment and the impact on rates paid on the Trust's lines of credit.
The Trust records its income producing properties at fair value in accordance with IFRS. The financial results include fair value adjustments that are more significant than previous periods (for both the three month and nine month periods).
These adjustments are a result of the Trust's regular quarterly IFRS fair value process and include the impact of COVID-19 on the enclosed regional centres from the challenging retail landscape. In accordance with this policy, the following fair value adjustments by segment have been recorded:
Three Months Ended December 31, |
Year Ended December 31, |
|||
2020 |
2019 |
2020 |
2019 |
|
Retail – Enclosed |
($52,508) |
($19,468) |
($308,432) |
($64,551) |
Retail – Strips |
(3,722) |
(3,265) |
(16,439) |
7,054 |
Office |
(30,949) |
(8,159) |
(94,838) |
(18,705) |
Industrial |
1,375 |
2,252 |
(57) |
2,352 |
($85,804) |
($28,640) |
($419,766) |
($73,850) |
|
The IFRS value of the Trust's enclosed mall portfolio has been reduced by $308.4 million since December 31, 2019. This included an average cap rate increase of 25 basis points in each of the first and third quarters along with changes in cash flow parameters. The significant changes to inputs into the forecasting of cash flows, include normalized vacancy rates, market rental rates, releasing assumptions and credit assumptions. The revised inputs into the discounted cash flow models have resulted in lower fair market values and higher implied overall cap rates.
The office fair value decline is due to the decline in Penn West Plaza arising from the discussions and resulting rent reduction granted to Obsidian, along with more conservative cash flow modelling assumptions resulting from the COVID-19 pandemic.
Reported net loss for the year ended December 31, 2020, was $357.4 million as compared to profit of $14.8 million in 2019. This change is due to the fair value losses recorded in 2020, as described above.
DISTRIBUTION DECREASE
Today, the Trust is announcing a decrease in distributions from 4 cents per unit to 2 cents per unit on a monthly basis. The retained cashflow will be used to pay off debt and provide added financial flexibility.
The impact of COVID-19 on Morguard REIT's operations has been significant and is still evolving. Multiple mandated closures of various businesses across the country have impacted the Trust's collections, operations and leasing programs. There is also the possibility for future mandated closures in areas of increasing infection rates. Consequently, the REIT's Board of Trustee's has made the decision to reduce the distribution to provide enhanced financial flexibility in the near term.
The Trust is announcing that the next distribution of 2 cents will be payable on March 15, 2021 to unitholders of record as at February 26, 2021.
COLLECTIONS UPDATE
As a result of the COVID-19 pandemic, certain medium and larger size tenants were unable to fulfil their rent obligations. MIL has been and will continue to work with all tenants that have arrears to review their situation and to consider rent payment solutions as necessary. Typically, these discussions related to the rent owing for April, May and June 2020 as part of the economic shutdown. There are a significant number of retail tenants who have requested consideration for a deferral or an abatement. Deferrals and abatements are being considered and granted on a case-by-case basis, depending on the financial condition of the tenant, and their fact situation in relation to how the pandemic impacted their operations. It was difficult to engage with tenants in a meaningful manner in regards to their arrears until they had visibility as to the economic landscape post closure, as well as having a more comprehensive understanding of the CECRA program. The rent payment solutions that have been negotiated may have also involved an exchange of rights or additional lease term for the deferral or abatement. Consequently, most of these rent payment solutions were negotiated in the fourth quarter and are now mostly complete. Any rent forgiveness or abatements processed on unpaid rent have been derecognized and charged to the allowance for doubtful accounts. Any unprocessed expected abatement to be negotiated in the future was considered as part of establishing the allowance for doubtful accounts.
MIL invoices contracted rent (including base rent, property taxes and common area maintenance charges) on the first of every month. Appropriate sales taxes are included in these billings depending upon the provincial jurisdiction.
The following is an analysis of collections of invoiced contracted rent by asset class, for selected months, including expected collections for February 2021, as of the date of this report (incorporating government and certain tenants that pay at the end of the month):
Approximate |
||||||||||||
October |
November |
December |
January |
February |
||||||||
Industrial |
1 |
% |
95 |
% |
94 |
% |
96 |
% |
97 |
% |
80 |
% |
Office |
43 |
% |
99 |
% |
99 |
% |
99 |
% |
98 |
% |
96 |
% |
Retail – community strip centres |
15 |
% |
95 |
% |
98 |
% |
97 |
% |
96 |
% |
91 |
% |
Retail – enclosed regional centres |
41 |
% |
82 |
% |
84 |
% |
81 |
% |
75 |
% |
71 |
% |
Total |
100 |
% |
92 |
% |
93 |
% |
92 |
% |
89 |
% |
85 |
% |
Net Operating Income, Funds from Operations
This press release and accompanying financial information make reference to net operating income and funds from operations on a total and per unit basis. Net operating income is defined as income from property operations after operating expenses have been deducted, but prior to deducting interest expense, general and administrative expenses and fair value gains/(losses). The Trust presents FFO in accordance with the Real Property Association of Canada white paper on funds from operations and adjusted funds from operations for IFRS. FFO is a non- GAAP measure that is widely accepted as a supplemental measure of financial performance for real estate entities. In accordance with such white paper, the Trust defines FFO as net income adjusted for fair value changes on real estate properties and gains/(losses) on the sale of real estate properties.
Financial Statements and Management's Discussion and Analysis
The Trust's Q4 2020 Consolidated Financial Statements and Management's Discussion and Analysis will be made available on the Trust's website at www.morguard.com and have been filed with SEDAR at www.sedar.com
Conference Call Details:
Date: Thursday February 18, 2021 4:00 p.m. (ET)
Conference Call #: 416-764-8688 or 1-888-390-0546
Conference ID #: 16791162
About Morguard Real Estate Investment Trust
The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 47 retail, office and industrial income producing properties in Canada with a book value of $2.5 billion and approximately 8.3 million square feet of leasable space.
SOURCE Morguard Real Estate Investment Trust
Morguard Real Estate Investment Trust, K. Rai Sahi, President and Chief Executive Officer, T 905-281-4800; Andrew Tamlin, Chief Financial Officer, T 905-281-4800
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