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Morguard Corporation Announces 2019 Second Quarter Results and Regular Eligible Dividend

Morguard 8/7/2019

Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the three and six months ended June 30, 2019.

Reporting Highlights

  • Total revenue increased by $13.7 million, or 4.7%, to $301.4 million for the three months ended June 30, 2019, compared to $287.7 million for the same period in 2018.

  • Net operating income ("NOI") decreased by $10.1 million, or 6.3%, to $150.1 million for the three months ended June 30, 2019, compared to $160.2 million for the same period in 2018, primarily due to the $17.3 million land arbitration settlement recorded during the second quarter of 2018, partially offset by acquisitions completed subsequent to June 30, 2018 and the impact of the adoption of IFRS 16.

  • Net income decreased by $26.6 million to $69.3 million for the three months ended June 30, 2019, compared to $95.9 million for the same period in 2018, primarily due to a decrease in non-cash net fair value gain of $25.2 million and the land rent arbitration settlement recorded during the second quarter of 2018, partially offset by a decrease in income taxes of $14.8 million as compared to 2018.

  • Normalized FFO increased by $3.4 million to $60.8 million for the three months ended June 30, 2019, compared to $57.4 million for the same period in 2018, representing a 6.0% increase.

Operational and Balance Sheet Highlights:

  • As at June 30, 2019, the Company's total assets were $11.3 billion compared to $11.1 billion as at December 31, 2018.

  • As at June 30, 2019, occupancy was consistent across all asset classes, supporting the Company's business objective of generating stable and increasing cash flow through its diversified portfolio of real estate assets.

  • During the second quarter, the Company increased its ownership in Temple Hotels Inc. ("Temple") to 72.6% (December 31, 2018 – 58.7%)

  • During the second quarter, Temple redeemed its 7.25% Series E convertible debentures in the amount of $40.6 million.

Financial Highlights

Three months ended

June 30

Six months ended

June 30

(in thousands of dollars, except per common share)

2019

2018

2019

2018

Revenue from real estate

$216,093

$207,061

$435,933

$410,900

Revenue from hotel properties

65,199

61,997

118,826

115,849

Management and advisory fees

12,430

14,401

24,081

28,838

Interest and other income

6,007

2,880

10,043

4,320

Sales of product and land

1,657

1,386

3,148

2,636

Total revenue

$301,386

$287,725

$592,031

$562,543

Revenue from real estate properties

$216,093

$207,061

$435,933

$410,900

Revenue from hotel properties

65,199

61,997

118,826

115,849

Land rent arbitration settlement

-

17,250

-

17,250

Property operating expenses

(82,990)

(81,470)

(207,369)

(196,646)

Hotel operating expenses

(48,157)

(44,603)

(92,671)

(87,373)

Net operating income

$150,145

$160,235

$254,719

$259,980

Net income attributable to common shareholders

$69,722

$75,604

$103,208

$192,212

Net income per common share – basic and diluted

$6.17

$6.62

$9.14

$16.72

Funds from operations

$62,311

$73,166

$115,877

$123,077

FFO per common share – basic and diluted

$5.52

$6.39

$10.26

$10.71

Normalized funds from operations

$60,826

$57,366

$111,847

$106,872

Normalized FFO per common share – basic and diluted

$5.39

$5.01

$9.91

$9.30

 

Net Income

Net income for the three months ended June 30, 2019, was $69.3 million compared to net income of $95.9 million in 2018. The decrease in net income of $26.6 million for the three months ended June 30, 2019, was primarily due to the following:

  • A decrease in NOI of $10.1 million, primarily due to the land rent arbitration settlement of $17.3 million received during the second quarter of 2018, partially offset by an increase in NOI due to acquisitions completed subsequent to June 30, 2018, and the impact of the adoption of IFRS 16, resulting in land rent expense being included in NOI in the comparative period while effective January 1, 2019, a finance charge is included in interest expense;

  • A decrease in management and advisory fees of $2.0 million, primarily due a decrease in asset management, property management and leasing fees earned as compared to 2018;

  • An increase in interest and other income of $3.1 million, primarily due to higher income earned from investments and finance lease receivable;

  • An increase in interest expense of $5.2 million, mainly due to interest on lease liabilities (noted above), higher interest on Unsecured Debentures and higher interest on mortgages payable;

  • A decrease in property management and corporate expense of $1.3 million, primarily due to a decrease in non-cash compensation expense related to the Company's stock appreciation rights plan ("SARs");

  • A decrease in provision for impairment of $6.7 million due to the recognition of impairment provision at two hotel properties located in Alberta during the second quarter of 2018;

  • A decrease in non-cash net fair value gain of $25.2 million, mainly due to a lower net fair value gain on real estate properties, partially offset by a decrease in net fair value loss on Morguard Residential REIT Units;

  • An increase in equity loss from investments of $4.3 million, mainly due to an increase in fair value loss;

  • A decrease in other income of $4.6 million, mainly due to a gain on the recognition of a finance lease upon the completion of the Company's development project in 2018 and an increase in foreign exchange loss; and

  • A decrease in income taxes (current and deferred) of $14.8 million.

Net Operating Income

NOI increased by $10.1 million, or 6.3%, during the three months ended June 30, 2019, to $150.1 million, compared to $160.2 million generated in 2018, and is further analyzed by asset type below.

Three months ended
June 30

Six months ended

June 30

(in thousands of dollars)

2019

2018

2019

2018

Multi-suite residential

$52,273

$51,111

$103,349

$98,506

Retail

35,045

32,487

71,856

64,123

Office

33,857

31,457

67,584

62,346

Industrial

2,456

2,736

4,604

5,002

Hotels

17,042

17,394

26,155

28,476

Adjusted NOI

140,673

135,185

273,548

258,453

Land rent arbitration settlement

-

17,250

-

17,250

IFRIC 21 adjustment – multi-suite residential

8,083

6,580

(16,075)

(13,093)

IFRIC 21 adjustment – retail

1,389

1,220

(2,754)

(2,630)

NOI

$150,145

$160,235

$254,719

$259,980

 

Adjusted NOI for the three months ended June 30, 2019, increased by $5.5 million to $140.7 million compared to $135.2 million in 2018, primarily due to the following:

  • An increase in the Canadian residential portfolio of $1.0 million, primarily resulting from an increase of $0.7 million mainly from rental rate growth, improved occupancy and lower operating expenses, and an increase in NOI of $0.3 million due to the adoption of IFRS 16;

  • A decrease in U.S. residential NOI of US$0.5 million, primarily resulting from a decrease of US$0.8 million due to the sale of five properties located in Louisiana during the first and second quarters of 2019, a decrease of US$0.3 million mainly due to higher amortization of rental concessions at two properties located in Chicago, partially offset by an increase of US$0.5 million due to the acquisition of Santorini Apartments and Vizcaya Lakes during the second quarter of 2018;

  • An increase of $2.4 million in Canadian retail properties resulting from an increase of $1.5 million due to the adoption of IFRS 16, an increase of $1.3 million due to a lease cancellation fee received from a tenant at a property located in Toronto, Ontario and a decrease of $0.4 million due to increased vacancy, lower base rent and higher non-recoverable operating expenses at the Canadian properties.

  • An increase in the office portfolio of $2.4 million, primarily due to acquisition of two properties during and subsequent to the second quarter of 2018, which resulted in an increase of $2.0 million;

  • A decrease in the industrial portfolio of $0.3 million, primarily due to a lease cancellation fee of $0.5 million received from a tenant in 2018 at a property located in Ottawa, Ontario;

  • A decrease in the hotel portfolio by $0.3 million due to a decrease of $1.8 million resulting from higher vacancy at hotels located in Alberta, a decrease of $0.7 million due to the re-branding of a hotel located in Red Deer, Alberta, partially offset by an increase of $1.3 million at the newly re-developed dual branded Hilton Garden Inn and Homewood Suites by Hilton located in Ottawa, Ontario which commenced its operations on January 1, 2019, and $0.9 million due to an increase in the average daily room rate at hotels located outside the province of Alberta; and

  • An increase of $1.0 million due to the change in the U.S. dollar foreign exchange rate.

Subsequent Events

On July 24, 2019, the Company acquired an office property consisting of 157,350 square feet located in Ottawa, Ontario, for a purchase price of $52.0 million, excluding closing costs.

On August 1, 2019, the Company sold its 50% interest in an industrial property, consisting of 242,521 square feet located in Salaberry-de-Valleyfield, Québec, for gross proceeds of $16.1 million.

Subsequent to June 30, 2019, the Company increased its investment in marketable securities in the amount of $65.6 million.

Third Quarter Dividend

The Board of Directors of Morguard Corporation announced that the third quarterly, eligible dividend of 2019 in the amount of $0.15 per common share will be paid on September 30, 2019, to shareholders of record at the close of business on September 16, 2019.

The Company's unaudited condensed consolidated financial statements for the three months ended June 30, 2019, 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 six months ended June 30, 2019 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 $21.2 billion. Morguard owns a diversified portfolio of 208 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,638 residential suites, approximately 17.1 million square feet of commercial leasable space and 5,903 hotel rooms. Morguard also currently owns a 58.1% 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 72.6% 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.

For further information: Morguard Corporation, K. Rai Sahi, Chief Executive Officer, T 905-281-3800; Paul Miatello, Chief Financial Officer, T 905-281-3800


Morguard Corporation; Real Estate Investment