Morguard Corporation Announces 2019 Results and Regular Eligible Dividend
MISSISSAUGA, Feb. 20, 2020 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the year ended December 31, 2019.
Reporting Highlights
- Total revenue increased by $35.1 million, or 3.0% to $1,193.0 million for the year ended December 31, 2019, compared to $1,157.9 million for the same period in 2018.
- Net operating income ("NOI") increased by $8.2 million, or 1.5%, to $556.2 million for the year ended December 31, 2019, compared to $548.0 million for the same period in 2018, primarily due to an increase in NOI from acquisition activity net of dispositions completed during and subsequent to the year ended December 31, 2018, and the impact of the adoption of IFRS 16, partially offset by the land rent arbitration settlement in 2018.
- Net income decreased by $155.3 million to $188.8 million for the year ended December 31, 2019, compared to $344.1 million for the same period in 2018, primarily due to a decrease in non-cash net fair value gain of $159.5 million, a decrease in the management and advisory fees of $9.7 million, an increase in interest expense of $20.4 million and a decrease in other income of $10.6 million, partially offset by an increase in net operating income of $8.2 million and a decrease in income taxes of $35.3 million as compared to 2018.
- Normalized FFO increased by $10.4 million to $228.1 million for the year ended December 31, 2019, compared to $217.7 million for the same period in 2018, representing a 4.8% increase.
Operational and Balance Sheet Highlights
- As at December 31, 2019, the Company's total assets were $11.7 billion compared to $11.1 billion as at December 31, 2018.
- During the year, 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.
- During the first quarter of 2019, the Company issued $225.0 million of 4.715% Series E senior unsecured debentures due on January 25, 2024.
- During the second quarter of 2019, Temple redeemed its 7.25% Series E convertible debentures in the amount of $40.6 million.
- During the fourth quarter of 2019, the Company issued $225.0 million of 4.204% Series F senior unsecured debentures due on November 27, 2024.
- Subsequent to December 31, 2019, the shareholders of Temple Hotels Inc. ("Temple") approved a special resolution approving the acquisition by Morguard of all of the issued and outstanding common shares of Temple not already owned by Morguard. On February 18, 2020, Morguard completed the transaction whereby Temple shareholders, excluding Morguard, received $2.10 per common share from Morguard.
Financial Highlights
For the years ended December 31 |
||
(in thousands of dollars, except per common share) |
2019 |
2018 |
Revenue from real estate properties |
$872,223 |
$841,497 |
Revenue from hotel properties |
245,282 |
237,938 |
Management and advisory fees |
52,401 |
62,096 |
Interest and other income |
17,294 |
10,947 |
Sales of product and land |
5,773 |
5,400 |
Total revenue |
$1,192,973 |
$1,157,878 |
Revenue from real estate properties |
$872,223 |
$841,497 |
Revenue from hotel properties |
245,282 |
237,938 |
Land rent arbitration settlement |
- |
17,250 |
Property operating expenses |
(371,596) |
(368,222) |
Hotel operating expenses |
(189,728) |
(180,488) |
Net operating income |
$556,181 |
$547,975 |
Net income attributable to common shareholders |
$186,939 |
$319,851 |
Net income per common share – basic and diluted |
$16.57 |
$27.96 |
Funds from operations |
$250,871 |
$232,396 |
FFO per common share – basic and diluted |
$22.23 |
$20.32 |
Normalized funds from operations |
$228,100 |
$217,728 |
Normalized FFO per common share – basic and diluted |
$20.21 |
$19.04 |
Acquisitions and Dispositions Completed During 2019
The following table presents a summary of the Company's acquisitions totalling $320.1 million during the year ended December 31, 2019.
Property |
Date of |
Asset Type |
Location |
Suites / |
Purchase Price |
99 Metcalfe Street |
July 24, 2019 |
Office |
Ottawa, ON |
157,000 |
$53,130 |
Marquee at Block 37 |
December 9, 2019 |
Residential |
Chicago, IL |
352 |
180,237 |
Mississauga City Centre |
December 19, 2019 |
Office |
Mississauga, ON |
398,500 |
86,694 |
$320,061 |
|||||
The following table presents a summary of the Company's net proceeds from dispositions totalling $53.3 million during the year ended December 31, 2019.
Property |
Date of Disposition |
Asset Type |
Suites / |
Proceeds |
Net Proceeds (1) |
Villages of Willamsburg |
February 1, 2019 |
Residential |
194 |
$13,510 |
$6,530 |
Steeplechase |
March 19, 2019 |
Residential |
192 |
15,062 |
5,645 |
Magnolia Place |
March 19, 2019 |
Residential |
148 |
8,208 |
2,274 |
Garden Lane |
March 27, 2019 |
Residential |
261 |
22,601 |
11,270 |
Colonial Manor |
April 30, 2019 |
Residential |
48 |
4,428 |
1,576 |
2 Rue St. Augustin |
June 21, 2019 |
Industrial |
10,000 |
90 |
90 |
825 Des Érables |
July 31, 2019 |
Industrial |
242,521 |
15,914 |
15,914 |
Westgate Shopping Center |
December 30, 2019 |
Retail |
167,500 |
10,023 |
10,023 |
$89,836 |
$53,322 |
(1) |
Net of repayment and mortgages assumed. |
Net Income
Net income for the year ended December 31, 2019, was $188.8 million compared to net income of $344.1 million in 2018. The decrease in net income of $155.3 million for the year ended December 31, 2019, was primarily due to the following:
- An increase in net operating income of $8.2 million, primarily due to an increase in NOI from acquisition activity net of dispositions completed during and subsequent to the year ended December 31, 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, partially offset by the land rent arbitration settlement adjustment during the second quarter of 2018;
- A decrease in management and advisory fees of $9.7 million, primarily due to lower asset management, property management, leasing and disposition fees earned compared to 2018;
- An increase in interest and other income of $6.3 million, primarily due to higher income from investments and finance lease receivable;
- An increase in interest expense of $20.4 million, mainly due to higher interest on lease liabilities (noted above), interest on Unsecured Debentures and interest on mortgages payable, partially offset by lower interest on convertible debentures;
- An increase in property management and corporate expense of $1.5 million, primarily due to an increase in non-cash compensation expense related to the Company's Stock Appreciation Rights ("SARs") plan;
- A decrease in provision for impairment of $6.7 million as a result of lower impairment recorded during 2019 compared to 2018;
- A decrease in non-cash net fair value gain of $159.5 million, primarily due to a lower net fair value gain recorded on the Company's real estate properties, partially offset by a decrease in the fair value loss on Morguard Residential REIT Units and an increase in the fair value gain recorded on investment in marketable securities and other real estate investment funds;
- An increase in equity loss from investments of $6.2 million, mainly due to an increase in fair value loss;
- A decrease in other income of $10.6 million, primarily due to a lower foreign exchange gain compared to 2018, as well as a gain on the recognition of a finance lease upon the completion of the Company's development project in 2018; and
- A decrease in income taxes (current and deferred) of $35.3 million.
Net Operating Income
NOI increased by $8.2 million, or 1.5%, during the year ended December 31, 2019, to $556.2 million, compared to $548.0 million generated in 2018, and is further analyzed by asset type below.
For the years ended December 31 |
|||||
(in thousands of dollars) |
2019 |
2018 |
|||
Multi-suite residential |
$212,039 |
$201,160 |
|||
Retail |
143,458 |
132,743 |
|||
Office |
136,480 |
129,454 |
|||
Industrial |
8,795 |
9,394 |
|||
Hotel |
55,554 |
57,450 |
|||
Adjusted NOI |
556,326 |
530,201 |
|||
Land rent arbitration settlement |
- |
17,250 |
|||
IFRIC 21 adjustment – multi-suite residential |
(134) |
498 |
|||
IFRIC 21 adjustment – retail |
(11) |
26 |
|||
NOI |
$556,181 |
$547,975 |
|||
NOI for the year ended December 31, 2019, decreased by $17.3 million due to the land rent arbitration settlement which resulted in a reversal of previously expensed land rent for the period from July 1, 2010 to April 30, 2018.
Adjusted NOI for the year ended December 31, 2019, increased by $26.1 million to $556.3 million compared to $530.2 million in 2018 primarily due to the following:
- An increase in the Canadian residential portfolio of $6.3 million primarily resulting from an increase of $3.3 million from rental rate growth and improved occupancy, an increase of $1.4 million due to a realty tax refund received at a property located in Toronto and an increase of $1.6 million due to the adoption of IFRS 16;
- An increase in U.S. residential NOI of US$1.4 million primarily resulting from an increase of US$2.1 million mainly from rental rate growth and improved occupancy, an increase of US$2.2 million due to the acquisition of Santorini Apartments and Vizcaya Lakes during the second quarter of 2018 and the acquisition of Marquee at Block 37 during the fourth quarter of 2019, partly offset by a decrease of US$2.9 million due to the sale of five properties located in Louisiana, during the first and second quarters of 2019;
- An increase of $9.5 million in Canadian retail properties resulting from an increase of $7.6 million due to adoption of IFRS 16, an increase in lease cancellation fees of $1.5 million and an increase of $1.1 million due to non-recurring income from a prior year realty tax refund and a settlement of disputed charges partially offset by a decrease of $0.6 million due to lower base rent, lower occupancy and increased non-recoverable operating expense;
- An increase in the office portfolio of $7.0 million, primarily due to the acquisition of four properties during and subsequent to the year ended December 31, 2018, which resulted in an increase of $7.8 million, an increase of $0.6 million due to adoption of IFRS 16, partially offset by a decrease of $0.7 million due to lower base rent, lower recoveries and higher non-recoverable operating expenses at the remaining Canadian office properties and a decrease of $0.6 million from lower lease cancellation fees;
- A decrease in the hotel portfolio of $1.9 million mainly due to higher vacancy and lower revenue per available room ("RevPar") primarily at hotels located in Alberta, which resulted in a decrease of $4.9 million and a decrease of $2.2 million due to the re-branding of a hotel located in Red Deer, Alberta, partially offset by an increase in net operating income of $2.5 million at the newly re-developed, Hilton Garden Inn and Homewood Suites by Hilton located in Ottawa, Ontario, which commenced operations on January 1, 2019, and an increase of $2.5 million due to an increase in average daily rate ("ADR") and RevPar at hotels located outside the province of Alberta; and
- An increase of $3.9 million due to the change in the U.S. dollar foreign exchange rate.
Funds From Operations
For the year ended December 31, 2019, the Company recorded FFO of $250.9 million ($22.23 per common share), compared to $232.4 million ($20.32 per common share) in 2018. The increase in FFO of $18.5 million is mainly due to the following:
- An increase in Adjusted NOI of $26.1 million, primarily from acquisition activity net of dispositions and the impact of the adoption of IFRS 16;
- A decrease of $17.3 million due to the reversal of land rent expense relating to a land arbitration settlement that was recognized in the second quarter of 2018;
- A decrease in management and advisory fees of $9.7 million, primarily due to lower asset management, property management, leasing and disposition fees earned compared to 2018;
- An increase in interest and other income of $6.3 million, primarily due to higher income earned from investments and finance interest earned from the Etobicoke Wellness Centre at Etobicoke General Hospital, classified as a finance lease receivable;
- An increase in interest expense of $20.4 million, mainly due to higher interest on lease liabilities, interest on Unsecured Debentures, interest on mortgages payable and lower amortization of mark-to-market adjustment, partially offset by lower interest on convertible debentures and bank indebtedness;
- An increase in principal repayment of lease liabilities of $2.1 million;
- An increase in property management and corporate expense of $1.5 million, primarily due to an increase in non-cash compensation expense related to the Company's SARs plan;
- A decrease in current income taxes of $3.9 million;
- A decrease in the non-controlling interests' share of FFO of $8.0 million;
- An increase in unrealized changes in the fair value of financial instruments of $25.9 million; and
- A decrease of $2.7 million due to a gain on the recognition of a finance lease during the second quarter of 2018.
The change in foreign exchange rates had a positive impact on FFO of $1.3 million ($0.11 per common share).
Normalized FFO for the year ended December 31, 2019, was $228.1 million, or $20.21 per common share, versus $217.7 million, or $19.04 per common share, for the same period in 2018, which represents an increase of $10.4 million or 4.8%. Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.
Subsequent Events
Temple has entered into a definitive agreement with Morguard pursuant to which Morguard will acquire all of the outstanding common shares of Temple not currently owned by Morguard. The transaction will be effected by way of a court-approved plan of arrangement under the Canada Business Corporations Act. The agreement provides that Temple shareholders, excluding Morguard, will receive $2.10 per common share from Morguard. A meeting of Temple shareholders was held February 10, 2020, whereat Temple shareholders approved a special resolution approving the acquisition by Morguard of all of the issued and outstanding common shares of Temple not already owned by Morguard. The arrangement agreement was completed on February 18, 2020, and subsequently on February 19, 2020, Temple de-listed from the TSX.
On February 19, 2020, the Company repaid three mortgage loans with an aggregate principal balance of $35.5 million, secured against four properties. The repayment resolves three of the five mortgage loans currently in default resulting from non-compliance of a Temple corporate debt service coverage ratio.
First Quarter Dividend
The Board of Directors of Morguard Corporation announced that the first quarterly, eligible dividend of 2020 in the amount of $0.15 per common share will be paid on March 31, 2020, to shareholders of record at the close of business on March 13, 2020.
The Company's audited financial statements for the year ended December 31, 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 year ended December 31, 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 $21.3 billion. Morguard owns a diversified portfolio of 207 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,637 residential suites, approximately 17.2 million square feet of commercial leasable space and 5,903 hotel rooms. Morguard also currently owns a 58.5% interest in Morguard Real Estate Investment Trust and a 44.8% 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, T 905-281-3800; Paul Miatello, Chief Financial Officer, T 905-281-3800
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