Morguard Corporation Announces 2014 Second Quarter Results and Regular Eligible Dividend

TSX: MRC

MISSISSAUGA, ON, Aug. 13, 2014 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) announced its financial results for the three months ended June 30, 2014.

HIGHLIGHTS

• Total revenue from real estate properties increased by 13.9% to $116.6 million compared to $102.3 million in 2013.
• Normalized net operating income ("Normalized NOI"), which excludes the impact of IFRIC 21 and land rent arbitration expense, increased by 11.4% to $62.0 million compared to $55.6 million for the same period in 2013.
• Normalized funds from operations ("Normalized FFO"), which excludes non-recurring items, increased by 5.8% to $44.1 million for the quarter ended June 30, 2014 compared to $41.7 million for the same period in 2013.
• Net income increased to $32.3 million in 2014 compared to $23.2 million in 2013.
• Occupancy rates increased as compared to June 30, 2013.  Combined retail, office and industrial occupancy were 92.9% at June 30, 2014, compared to 92.7% at June 30, 2013.  Combined multi-unit residential occupancy was 96.1% at June 30, 2014, compared to 95.5% at June 30, 2013.
• Strong leasing activity at the Company's two developments: (1) Performance Court, Ottawa, Ontario is now 84% leased and tenant occupancies commenced in Q1 2014 and (2) The Heathview, Toronto, Ontario is now 32% leased (Phase 1) with tenant occupancies commencing in Q3 2014.

All amounts in thousands of Canadian dollars, except for per share amounts, unless otherwise noted.

FINANCIAL HIGHLIGHTS

	Three months ended June 30		Six months ended June 30
(in thousands of dollars)	2014	2013	2014	2013
Revenue from income producing properties	$116,556	$102,324	$234,759	$194,012
Management and advisory fees	16,302	15,929	32,499	32,156
Interest and other	2,983	4,737	7,290	6,695
Sales of product and land	1,231	6,820	2,516	8,044
Total revenues	137,072	129,810	277,064	240,907
Revenue from income producing properties	116,556	102,324	234,759	194,012
Property operating costs and realty tax expense	(50,083)	(43,370)	(120,164)	(95,181)
Land lease arbitration expense	(2,046)	(20,158)	(4,092)	(20,513)
Net operating income	64,427	38,796	110,503	78,318
IFRIC 21 and land rent arbitration expense	(2,459)	16,807	13,298	25,075
Normalized net operating income	$61,968	$55,603	$123,801	$103,393
Consolidated funds from operations (FFO)	$35,380	$24,044	$79,292	$74,302
Per share - basic and diluted	$2.83	$1.89	$6.32	$5.83
Normalized FFO	$44,141	$41,719	$88,053	$79,373
Per share - basic and diluted	$3.53	$3.25	$7.02	$6.23
Net income attributable to common shareholders	$32,141	$22,971	$58,771	$122,547
Per share - basic and diluted	$2.57	$1.81	$4.69	$9.62

NET INCOME

The Company's net income attributable to common shareholders for the three months ended June 30, 2014, was $32,141 ($2.57 per share) compared to $22,971 ($1.81 per share) for the same period in 2013. The increase in net income of $9,170 for the three months ended June 30, 2014, was primarily due to an increase in net operating income of $25,631 and an increase in fair value gains of $19,264. These items were partially offset by an increase in interest expense of $2,767, an increase in property management and corporate expenses of $2,257, an increase in other expense of $4,528, a decrease in equity income from investments of $7,619, a decrease in net profit from sale of product and land of $2,007, a decrease in interest and other income of $1,754 and an increase in income taxes of $14,944.

NET OPERATING INCOME

Three months ended June 30,	2014			2013
(In thousands of dollars)	NOI	Adjustments	Normalized NOI	NOI	Adjustments	Normalized NOI
Net operating income - Canadian properties
Multi-unit residential - Canada	$14,355	$266	$14,621	$11,965	$2,621	$14,586
Retail - Canada	7,445	1,739	9,184	(7,130)	17,134	10,004
Office and industrial	10,332	41	10,373	9,611	403	10,014
Hotel	2,643	-	2,643	1,185	-	1,185
	34,775	2,046	36,821	15,631	20,158	35,789
Net operating income - U.S. properties in U.S. dollars
Multi-unit residential - U.S.	20,194	(3,203)	16,991	15,784	(2,333)	13,451
Retail - U.S.	7,018	(943)	6,075	6,856	(944)	5,912
	27,212	(4,146)	23,066	22,640	(3,277)	19,363
Exchange amount to Canadian dollars	2,440	(359)	2,081	525	(74)	451
Net operating income - U.S. properties in Canadian dollars	29,652	(4,505)	25,147	23,165	(3,351)	19,814
Net operating income	$64,427	($2,459)	$61,968	$38,796	$16,807	$55,603

Six months ended June 30,	2014			2013
(In thousands of dollars)	NOI	Adjustments	Normalized NOI	NOI	Adjustments	Normalized NOI
Net operating income - Canadian properties
Multi-unit residential - Canada	$27,343	$532	$27,875	$25,391	$2,667	$28,058
Retail - Canada	13,881	3,478	17,359	779	17,436	18,215
Office and industrial	24,197	82	24,279	19,275	410	19,685
Hotel	4,429	-	4,429	1,876	-	1,876
	69,850	4,092	73,942	47,321	20,513	67,834
Net operating income - U.S. properties in U.S. dollars
Multi-unit residential - U.S.	26,991	6,367	33,358	20,568	2,634	23,202
Retail - U.S.	10,189	1,910	12,099	9,839	1,937	11,776
	37,180	8,277	45,457	30,407	4,571	34,978
Exchange amount to Canadian dollars	3,473	929	4,402	590	(9)	581
Net operating income - U.S. properties in Canadian dollars	40,653	9,206	49,859	30,997	4,562	35,559
Net operating income	$110,503	$13,298	$123,801	$78,318	$25,075	$103,393

Normalized NOI adjusts for the impact of IFRIC 21 by recognizing realty taxes on a pro rated basis over the entire year or the period of ownership for the properties acquired during the year and excludes land rent arbitration expense. Normalized NOI for the three months ended June 30, 2014, increased by $6.4 million to $62.0 million compared to $55.6 million in 2013, representing an increase of 11.4%.  The increase was predominantly the result of the acquisitions of the Canadian multi-unit residential property, the five hotel properties and the 12 U.S. multi-unit residential properties purchased in 2013 and the industrial development project completed in 2013 which increased NOI by $10.9 million.

CONSOLIDATED FUNDS FROM OPERATIONS ("Consolidated FFO")

The Company's consolidated FFO includes funds available to non-controlling interests and was calculated as follows:

	Three months ended June 30,			Six months ended June 30,
(In thousands of dollars except for per share amounts)	2014	2013		2014	2013
Net income attributable to common shareholders	$32,141	$22,971		$58,771	$122,547
Items not affecting cash:
Fair value (gain) loss on real estate properties	(19,369)	38,052		(31,309)	3,742
Fair value loss (gain) on Morguard Residential REIT Units, net	15,450	(22,892)		22,741	(28,153)
Fair value gain on Morguard REIT 2012 debentures	(205)	-		(680)	-
Fair value loss of conversion option of convertible debentures	18	-		95	-
Distribution to Morguard Residential REIT's external unitholders	3,577	3,575		7,154	6,408
Non-controlling interests' share of fair value gain on real    estate properties	(97)	(115)		(87)	(194)
Deferred income taxes	12,534	(5,381)		17,819	(4,526)
Depreciation on hotel buildings	912	527		1,813	1,017
Depreciation on owner occupied property	26	26		52	52
Equity income from Morguard REIT	(15,300)	(22,197)		(31,427)	(54,722)
Morguard REIT's equity accounted FFO	12,390	10,553		23,685	21,243
Transaction costs incurred on business combination	-	1,829		-	1,829
Foreign exchange (gain) loss	(2,535)	-		1,060	-
Internal leasing costs	343	447		399	497
Realty tax expense accounted for under IFRIC 21	(4,505)	(3,351)		9,206	4,562
Consolidated FFO	$35,380	$24,044		$79,292	$74,302
Consolidated FFO per share amounts - basic and diluted	$2.83	$1.89		$6.32	$5.83

Consolidated FFO - Morguard's Share
Consolidated FFO (from above)	$35,380	$24,044	$79,292	$74,302
Less non-controlling interest: Morguard Residential REIT	(5,888)	(4,195)	(11,396)	(7,460)
Consolidated FFO - Morguard's share	$29,492	$19,849	$67,896	$66,842
Per share amounts - basic and diluted	$2.36	$1.56	$5.41	$5.25

For the three months ended June 30, 2014, the Company recorded consolidated FFO of $35,380 ($2.83 per share) compared to $24,044 ($1.89 per share) in 2013. The increase in consolidated FFO of $11,336, which reflects a 47.2% increase, is mainly due to an increase in net operating income excluding the impact of IFRIC 21 of $24,477 and a decrease in current taxes of $2,971. These items were partially offset by a decrease in interest and other income of $1,754, an increase in interest expense of $2,767, an increase in property management and corporate expenses of $2,257, an increase in other expense of $7,063 (net of the foreign exchange gain) and a decrease in net profit from sale of product and land of $2,007. The change in foreign exchange rates had a positive impact on FFO of $924 ($0.07 per share).

Normalized funds from operations ("Normalized FFO"), for the three months ended June 30, 2014 excludes the net of tax impact of the non-recurring items (i) impairment of investment in 2014 of $8,761 (ii) the arbitration settlement received in 2013 of $592 and (iii) the increase in the land rent arbitration expense of $18,112 in 2013. Normalized FFO for the three months ended June 30, 2014, would have been $44,141 or $3.53 per share versus $41,719 or $3.28 per share for the same period in 2013, which represents an increase in Normalized FFO of $2,422 or 5.8%.

Morguard's share of consolidated FFO for the six months ended June 30, 2014, totalled $67,896 or $5.41 per share, compared to $66,842 or $5.25 per share  in 2013, which represents a increase of $1,054 or 1.6%.

THIRD QUARTER DIVIDEND

The board of directors of Morguard Corporation announced today that the third quarterly, eligible dividend of 2014 in the amount of $0.15 per common share will be paid on September 30, 2014 to shareholders of record at the close of business on September 15, 2014.

Readers are cautioned that although the terms "Net Operating Income", "Normalized NOI", "Funds From Operations" and "Normalized FFO" are commonly used to measure, compare and explain the operating and financial performance of Canadian real estate companies and such terms are defined in the Management's Discussion and Analysis, such terms are not recognized terms under Canadian generally accepted accounting principles.  Such terms do not necessarily have a standardized meaning and may not be comparable to similarly titled measures presented by the other publicly traded entities.

The Company's interim unaudited condensed financial statements for the three months ended June 30, 2014, along with the 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.

Morguard Corporation is a real estate company, which owns a diversified portfolio of 123 multi-unit residential, retail, hotel, office and industrial properties comprising of 16,099 multi-unit residential suites, 1,056 hotel rooms and approximately 7.4 million square feet of commercial leasable space. Morguard Corporation also owns a 44.8% interest in Morguard Real Estate Investment Trust and a 48.7% effective interest in Morguard North American Residential Real Estate Investment Trust.  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
[phone]

Paul Miatello
Chief Financial Officer
[phone]