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Morguard Real Estate Investment Trust Announces 2023 Fourth Quarter and Annual Results - Feb 14, 2024

Morguard Real Estate Investment Trust Announces 2023 Fourth Quarter and Annual Results

Feb 14, 2024

MISSISSAUGA, ON, Feb. 14, 2024 /CNW/ - Morguard Real Estate Investment Trust ("the Trust") (TSX: MRT.UN) today is pleased to announce its 2023 Fourth Quarter and Annual Results.

In thousands of dollars, except per-unit
amounts

Three Months Ended December 31,

Year Ended December 31,

2023

2022

2023

2022

Revenue from real estate properties

$65,857

$59,664

$255,076

$242,629

Net operating income

33,409

33,539

125,973

122,199

Fair value losses on real estate properties

(42,880)

(113,004)

(131,765)

(148,977)

Net loss

(27,795)

(95,376)

(74,445)

(86,097)

Funds from operations 1

15,685

19,002

60,896

66,823

Adjusted funds from operations 1,2

9,670

12,745

36,965

42,721

Amounts presented on a per unit basis





Net loss – basic

($0.43)

($1.48)

($1.16)

($1.34)

Net loss – diluted

($0.43)

($1.48)

($1.16)

($1.34)

Funds from operations – basic 1

$0.24

$0.30

$0.95

$1.04

Funds from operations – diluted 1,3

$0.21

$0.25

$0.82

$0.89

Adjusted funds from operations – basic 1,2

$0.15

$0.20

$0.58

$0.67

Adjusted funds from operations – diluted 1,2,3

$0.14

$0.18

$0.54

$0.60






1. The following represents a non-GAAP financial measure/ratio that does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. This measure should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. Additional information on this non-GAAP financial measure/ratio can be found under the MD&A section Part I, "Specified Financial Measures".


2. The Trust uses normalized productive capacity maintenance expenditures to calculate adjusted funds from operations.


3. Includes the dilutive impact of convertible debentures and presented on a cash settlement basis for consistency with industry practice for calculating FFO and AFFO.

SELECTED FINANCIAL INFORMATION
The table below sets forth selected financial data relating to the Trust's fiscal years ended December 31, 2023 and 2022. This financial data is derived from the Trust's consolidated statements which are prepared in accordance with IFRS.


Three Months Ended December 31,

Year Ended December 31,




For the year ended December 31,

2023

2022

% Change

2023

2022

% Change

Revenue from real estate properties

$65,857

$59,664

10.4 %

$255,076

$242,629

5.1 %

Property operating expenses

(18,292)

(17,193)

6.4 %

(72,066)

(68,801)

4.7 %

Property taxes

(11,896)

(6,905)

72.3 %

(48,296)

(43,299)

11.5 %

Property management fees

(2,260)

(2,027)

11.5 %

(8,741)

(8,330)

4.9 %

Net operating income

33,409

33,539

(0.4 %)

125,973

122,199

3.1 %

Interest expense

(17,173)

(14,097)

21.8 %

(62,845)

(53,523)

17.4 %

General and administrative

(873)

(818)

6.7 %

(3,843)

(3,741)

2.7 %

Other items

(8)

1,029

(100.8 %)

(65)

967

(106.7 %)

Fair value losses on real estate properties

(42,880)

(113,004)

(62.1 %)

(131,765)

(148,977)

(11.6 %)

Net loss from equity-accounted investment

(270)

(2,025)

(86.7 %)

(1,900)

(3,022)

(37.1 %)

Net loss

($27,795)

($95,376)

(70.9 %)

($74,445)

($86,097)

(13.5 %)

CONSOLIDATED OPERATING HIGHLIGHTS
The following is an analysis of net operating income by asset type:


Three Months Ended December 31,

Year Ended December 31,

For the year ended December 31,

2023

2022

% Change

2023

2022

% Change

Enclosed regional centres

$12,220

$12,411

(1.5 %)

$43,606

$39,416

10.6 %

Community strip centres

6,052

5,719

5.8 %

23,232

22,670

2.5 %

Subtotal – retail

18,272

18,130

0.8 %

66,838

62,086

7.7 %








Single-/dual-tenant buildings

12,454

12,528

(0.6 %)

49,120

47,303

3.8 %

Multi-tenant buildings

2,155

2,437

(11.6 %)

8,129

10,578

(23.2 %)

Subtotal – office

14,609

14,965

(2.4 %)

57,249

57,881

(1.1 %)








Industrial

528

444

18.9 %

1,886

2,232

(15.5 %)

Net operating income

$33,409

$33,539

(0.4 %)

$125,973

$122,199

3.1 %

The increase in enclosed regional centres net operating income for the year ended December 31, 2023, is due to a one-time prior year property tax refund recorded in 2023 on an enclosed regional centre in the amount of $2.8 million primarily for vacant space and space previously occupied by bankrupt or otherwise failed tenants, coupled with increased rents earned in 2023. The decrease in multi-tenant office net operating income for the year ended December 31, 2023, is due to higher vacancy in this asset class. The decrease in industrial net operating income for the year ended December 31, 2023, is due to temporary vacancy at one of the Trust's single tenant industrial properties.

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:


Three Months Ended December 31,

Year Ended December 31,

For the year ended December 31,

2023

2022

% Change

2023

2022

% Change

Industrial

$975

$828

17.8 %

$3,591

$3,944

(9.0 %)

Office – Single-/dual-tenant buildings

22,175

21,930

1.1 %

86,846

83,455

4.1 %

Office – Multi-tenant buildings

6,476

6,442

0.5 %

24,865

27,080

(8.2 %)

Retail – Community strip centres

9,320

8,768

6.3 %

37,244

35,983

3.5 %

Retail – Enclosed regional centres

26,911

21,696

24.0 %

102,530

92,167

11.2 %

Total

$65,857

$59,664

10.4 %

$255,076

$242,629

5.1 %

The following is an analysis of revenue from real estate properties by revenue type:

For the three months ended December 31,

2023

2022

Variance

Rental revenue

$40,222

$39,531

$691

CAM recoveries

13,087

13,125

(38)

Property tax and insurance recoveries

9,782

4,570

5,212

Other revenue and lease cancellation fees

1,608

1,355

253

Parking revenue

1,384

1,232

152

Amortized rents

(226)

(149)

(77)


$65,857

$59,664

$6,193

 

For the year ended December 31,

2023

2022

Variance

Rental revenue

$154,744

$153,685

$1,059

CAM recoveries

50,659

48,501

2,158

Property tax and insurance recoveries

40,531

32,063

8,468

Other revenue and lease cancellation fees

5,102

5,165

(63)

Parking revenue

5,413

4,507

906

Amortized rents

(1,373)

(1,292)

(81)


$255,076

$242,629

$12,447

Property operating expenses for the three months ended December 31, 2023, increased 6.4% to $18.3 million from $17.2 million for the same period in 2022. This increase is primarily due to increased bad debt expense and insurance deductibles compared to 2022.

Net operating income for the three months ended December 31, 2023, increased 0.4% as compared to 2022. This increase was the result increases in basic rent in 2023 in the retail asset class, offset by increases in vacancy costs in the multi-tenant office asset class.

Interest expense for the three months ended December 31, 2023, increased 21.8% to $17.2 million from $14.1 million for the same period in 2022. This increase is primarily due to higher interest rates on both variable and new fixed rate debt on a year-over-year basis, offset by a $11.7 million decline in overall debt levels on a year-over-year basis.

Fair value losses for the three months ended December 31, 2023, were $42.9 million, versus fair value losses of $113.0 million for the three months ended December 31, 2022. The following fair value adjustments by segment have been recorded during the quarter:


Three Months Ended December 31,

Year Ended December 31,

For the year ended December 31,

2023

2022

2023

2022

Retail – enclosed regional centres

($459)

($49,635)

($387)

($90,118)

Retail – community strip centres

(4,083)

(3,465)

(8,837)

7,991

Office

(41,045)

(60,961)

(136,985)

(78,044)

Industrial

2,707

1,057

14,444

11,194


($42,880)

($113,004)

($131,765)

($148,977)

Reported net loss for the year ended December 31, 2023, was $74.4 million as compared to loss of $86.1 million in 2022. This change is due to the fair value losses recorded in 2023, as described above.

FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
The Trust presents FFO and AFFO in accordance with the current definition of the REALPAC.

FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS

In thousands of dollars, except per unit amounts

Three Months Ended December 31,

Year Ended December 31,

2023

2022

% Change

2023

2022

% Change

Net loss

($27,795)

($95,376)

(70.9 %)

($74,445)

($86,097)

(13.5 %)

Adjustments:







Fair value losses on real estate properties 1

43,500

115,499

(62.3 %)

135,433

154,104

(12.1 %)

Amortization of right-of-use assets

14

21

(33.3 %)

76

83

(8.4 %)

Payment of lease liabilities, net

(34)

(42)

(19.0 %)

(168)

(167)

0.6 %

Expropriation proceeds (other income)

—

(1,100)

— %

—

(1,100)

(100.0 %)

Funds from operations – basic

15,685

19,002

(23.2 %)

60,896

66,823

(8.9 %)

Interest expense on convertible debentures

2,070

2,070

— %

8,348

8,348

— %

Funds from operations – diluted 2

$17,755

$21,072

(21.0 %)

$69,244

$75,171

(7.9 %)








Funds from operations – basic

$15,685

$19,002

(17.5 %)

$60,896

$66,823

(8.9 %)

Adjustments:







Amortized stepped rents 1

235

(7)

(3,457.1 %)

1,069

898

19.0 %

Normalized PCME

(6,250)

(6,250)

— %

(25,000)

(25,000)

— %

Adjusted funds from operations – basic

9,670

12,745

(24.1 %)

36,965

42,721

(13.5 %)

Interest expense on convertible debentures

2,070

2,070

— %

8,348

8,348

— %

Adjusted funds from operations – diluted 2

$11,740

$14,815

(20.8 %)

$45,313

$51,069

(11.3 %)








1. Includes respective adjustments included in net income from equity-accounted investment.




2. Includes the dilutive impact of convertible debentures and presented on a cash settlement basis for consistency with industry practice for calculating FFO and AFFO.

SPECIFIED FINANCIAL MEASURES
The Trust reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, this earnings release also uses specified financial measures that are not defined by IFRS which follow the disclosure requirements established by National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. Specified financial measures are categorized as non-GAAP financial measures, non-GAAP ratios, and other financial measures. Additional details on specified financial measures including supplementary financial measures, capital management measures and total segment measures are set out in the Trust's Management's Discussion and Analysis for the period ended December 31, 2023 and available on the Trust's profile on SEDAR+ at www.sedarplus.ca.

The following Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. These measures should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. The Trust's management uses these measures to aid in assessing the Trust's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP financial measures, which supplement the IFRS measures, provide readers with a more comprehensive understanding of management's perspective on the Trust's operating results and performance.

FUNDS FROM OPERATIONS ("FFO")
FFO is a non-GAAP measure widely used as a real estate industry standard that supplements net income and evaluates operating performance but is not indicative of funds available to meet the Trust's cash requirements. FFO can assist with comparisons of the operating performance of the Trust's real estate between periods and relative to other real estate entities. FFO is computed by the Trust in accordance with the current definition of the Real Property Association of Canada ("REALPAC") and is defined as net income adjusted for fair value changes on real estate properties and gains/(losses) on the sale of real estate properties. The Trust considers FFO to be a useful measure for reviewing its comparative operating and financial performance.

ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
AFFO is a non-GAAP measure that was developed to be a recurring economic earnings measure for real estate entities. The Trust presents AFFO in accordance with the current definition of the REALPAC. The Trust defines AFFO as FFO adjusted for straight-line rent and productive capacity maintenance expenditures ("PCME"). AFFO should not be interpreted as an indicator of cash generated from operating activities as it does not consider changes in working capital.

Financial Statements and Management's Discussion and Analysis
The Trust's Q4 2023 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.sedarplus.ca.

Conference Call Details:
Date:                                        Thursday, February 15, 2024, 4:00 p.m. (ET)
Conference Call #:                   416-764-8688 or 1-888-390-0546
Conference ID #:                      53362834

About Morguard Real Estate Investment Trust
The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 46 retail, office and industrial income producing properties in Canada with a book value of $2.3 billion and approximately 8.2 million square feet of leasable space.

SOURCE Morguard Real Estate Investment Trust

For further information: Please contact 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