Morguard Corporation Announces 2018 Third Quarter Results and Regular Eligible Dividend

MISSISSAUGA, ON, Nov. 8, 2018 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the three and nine months ended September 30, 2018.

Reporting Highlights

• Total revenue increased by $14.4 million to $294.0 million, or 5.2% for the three months ended September 30, 2018, compared to $279.6 million for the same period in 2017.
  
  
• Net operating income ("NOI") increased by $7.0 million, or 5.1%, to $145.4 million for the three months ended September 30, 2018, compared to $138.4 million for the same period in 2017.
  
  
• Fair value gain on real estate properties increased by $57.1 million to $31.0 million for the three months ended September 30, 2018, compared to fair value loss of $26.1 million for the same period in 2017.
  
  
• Net income increased by $31.4 million to $54.7 million for the three months ended September 30, 2018, compared to $23.3 million for the same period in 2017.
  
  
• Funds from operations ("FFO") increased by $1.5 million to $56.9 million, for the three months ended September 30, 2018, compared to $55.4 million, for the same period in 2017, representing a 2.6% increase.
  
  
• FFO per common share increased by $0.31 per share to $4.98 per share, for the three months ended September 30, 2018 compared to $4.67 per share, for the same period in 2017, representing a 6.6% increase.

Operational and Balance Sheet Highlights:

• Shareholders' equity per common share (excluding non-controlling interest) increased to $288.80 as at September 30, 2018, compared to $260.32 as at December 31, 2017.
  
  
• During the three months ended September 30, 2018, 46,485 common shares were repurchased through the Company's NCIB for cash consideration of $8.0 million.
  
  
• As at September 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.

Acquisitions Completed During the Third Quarter of 2018

On August 17, 2018, the Company acquired 41 Rue Victoria, Gatineau, Québec, for a purchase price of $60.6 million, including closing costs. 41 Rue Victoria is class A, 134,000 square foot, purpose built, office building. The building is fully occupied on a long term lease with 12.5 years remaining by a tenant, a global leader in renewable energy. The property is located in Gatineau's central business district, only two kilometers from Ottawa's central business district. As the newest building in the node, 41 Rue Victoria is  well recognized for its physical characteristics given its LEED^® Registered designation along with the Association of Registered Interior Designers of Ontario ("ARIDO") Award of Merit in 2016 for excellence, innovation and originality in interior design.

Financial Highlights

	Three months ended September 30		Nine months ended September 30
(in thousands of dollars, except per common share)	2018	2017	2018	2017
Revenue from real estate	$209,610	$195,167	$620,510	$586,107
Revenue from hotel properties	64,689	65,431	180,538	179,828
Management and advisory fees	14,998	15,728	43,836	50,060
Interest and other income	3,414	1,870	7,734	6,400
Sales of product and land	1,322	1,416	3,958	3,856
Total revenue	$294,033	$279,612	$856,576	$826,251
Revenue from real estate properties	$209,610	$195,167	$620,510	$586,107
Revenue from hotel properties	64,689	65,431	180,538	179,828
Land rent arbitration settlement	-	-	17,250	-
Property operating expenses	(83,490)	(78,408)	(280,136)	(262,386)
Hotel operating expenses	(45,425)	(43,816)	(132,798)	(129,345)
Net operating income	$145,384	$138,374	$405,364	$374,204
Net income attributable to common shareholders	$46,750	$27,552	$238,962	$194,820
Net income per common share – basic and diluted	$4.11	$2.33	$20.83	$16.37
Funds from operations	$56,909	$55,448	$179,986	$156,476
FFO per common share – basic and diluted	$4.98	$4.67	$15.69	$13.15

Net Income

Net income for the three months ended September 30, 2018, was $54.7 million compared to net income of $23.3 million in 2017. The increase in net income of $31.4 million for the three months ended September 30, 2018, was primarily due to the following:

• An increase in net operating income of $7.0 million, primarily due to acquisitions completed during and subsequent to the third quarter of 2017;
• An increase in interest and other income of $1.5 million;
• An increase in interest expense of $4.1 million;
• An increase in the property management and corporate expense of $3.0 million;
• An increase in non-cash net fair value gain of $38.8 million;
• An increase in equity loss from investments of $9.6 million;
• A decrease in other income of $3.2 million; and
• A decrease in income taxes (current and deferred) of $5.2 million.

Net Operating Income

NOI increased by $7.0 million, or 5.1%, during the three months ended September 30, 2018, to $145.4 million, compared to $138.4 million generated in 2017. The increase in NOI is due to an increase in IFRIC 21 adjustment of $1.6 million and the change in Adjusted NOI is further analyzed by asset type below.

	Three months ended September 30		Nine months ended September 30
(in thousands of dollars)	2018	2017	2018	2017
Multi-suite residential	$50,740	$46,884	$149,246	$137,499
Retail	31,558	31,530	95,681	96,251
Office	33,108	29,865	95,454	91,503
Industrial	2,215	1,546	7,217	4,769
Hotel	19,264	21,615	47,740	50,483
Adjusted NOI	136,885	131,440	395,338	380,505
Land rent arbitration settlement	-	-	17,250	-
IFRIC 21 adjustment – multi-suite residential	7,227	5,735	(5,866)	(4,911)
IFRIC 21 adjustment – retail	1,272	1,199	(1,358)	(1,390)
NOI	$145,384	$138,374	$405,364	$374,204

Adjusted NOI for the three months ended September 30, 2018, increased by $5.5 million to $136.9 million compared to $131.4 million in 2017 primarily due to the following:

• An increase in the Canadian residential portfolio of $1.1 million primarily from rental rate growth, improved occupancy and lower operating expenses;
  
  
• An increase in the U.S. residential portfolio of US$1.1 million primarily due to the acquisition of five residential properties during and subsequent to the third quarter of 2017;
  
  
• An increase in the U.S. residential portfolio of US$0.3 million primarily due to an increased occupancy and rental rate growth at properties located in U.S.;
  
  
• An increase in the office portfolio of $3.2 million primarily due to the acquisition of five properties completed during and subsequent to the third quarter of 2017 which generated NOI of $1.9 million, an increase of $0.5 million due to lease cancellation fees received from a tenant at a property located in Saint Laurent, Quebec and an increase of $0.8 million due to increased rental revenue and recoveries and lower non-recoverable operating expenses.
  
  
• An increase in the industrial portfolio of $0.7 million primarily due to acquisition of a property during the first quarter of 2018 that contributed $0.5 million and an increase of $0.2 million due to higher rental revenue from new tenants and lower non-recoverable operating expenses.
  
  
• A decrease in the hotel portfolio of $2.4 million mainly due to increased vacancy as a result of renovations at two hotels located near Toronto's Pearson Airport, increased vacancy primarily at two Fort McMurray hotels, including the expiry of a long-term lease at the Cortona Residence and $0.1 million due to the sale of a hotel during the third quarter of 2017; and
  
  
• An increase of $1.6 million due to the change in the U.S. dollar foreign exchange rate.

Funds From Operations

For the three months ended September 30, 2018, the Company recorded FFO of $56.9 million ($4.98 per common share), compared to $55.4 million ($4.67 per common share) in 2017. The increase in FFO of $1.5 million is mainly due to the following:

• An increase in Adjusted NOI of $5.4 million primarily due to the acquisition of properties;
• A decrease in management and advisory fees of $0.7 million;
• An increase in interest and other income of $1.5 million;
• A decrease in equity accounted FFO of $2.1 million;
• An increase in interest expense of $4.1 million, primarily due to higher interest on Unsecured Debentures and on the financing of acquisitions;
• An increase in property management and corporate expense of $3.0 million;
• An increase in amortization of capital assets of $0.9 million; and
• A decrease in current income taxes of $5.3 million.

The change in foreign exchange rates had a positive impact on FFO of $0.6 million ($0.05 per common share).

Normalized FFO for the three months ended September 30, 2018, was $56.6 million, or $4.95 per common share, versus $55.4 million, or $4.67 per common share, for the same period in 2017, which represents an increase of $1.2 million, or 2.0%. Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.

Fourth Quarter Dividend

The Board of Directors of Morguard Corporation announced that the fourth quarterly, eligible dividend of 2018 in the amount of $0.15 per common share will be paid on December 31, 2018, to shareholders of record at the close of business on December 14, 2018.

The Company's unaudited condensed consolidated financial statements for the three and nine months ended September 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 nine months ended September 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 $21.6 billion. Morguard owns a diversified portfolio of 213 multi-suite residential, retail, office, industrial and hotel properties comprised of 18,481 residential suites, approximately 16.9 million square feet of commercial leasable space and 5,557 hotel rooms. Morguard also currently owns a 56.2% 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

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

Related Links

http://www.morguard.com