Morguard Corporation Announces 2020 Results and Regular Eligible Dividend

MISSISSAUGA, ON, Feb. 25, 2021 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) today announced its financial results for the year ended December 31, 2020, including a brief operational and liquidity update as we continue to focus on managing through the COVID-19 pandemic.

Reporting Highlights

• Total revenue from real estate properties increased by $16.1 million, or 1.8% to $888.3 million for the year ended December 31, 2020, compared to $872.2 million for the same period in 2019.
  
  
• Total revenue from hotel properties decreased by $147.2 million, or 60.0% to $98.1 million for the year ended December 31, 2020, compared to $245.3 million for the same period in 2019.
  
  
• Net operating income ("NOI") decreased by $65.0 million, or 11.7%, to $491.2 million for the year ended December 31, 2020, compared to $556.2 million for the same period in 2019, primarily due to lower NOI from the hotel portfolio and higher bad debt expense.
  
  
• Net loss increased by $438.8 million to a net loss of $250.0 million for the year ended December 31, 2020, compared to net income of $188.8 million for the same period in 2019. The decrease was primarily due to a higher net fair value loss of $501.7 million, a higher provision for impairment of $14.1 million and a decrease in NOI of $65.0 million, partially offset by a decrease in equity loss from investments of $21.4 million, a decrease in property management and corporate of $34.5 million and an increase in deferred income tax recovery of $103.3 million.
  
  
• Normalized FFO decreased by $44.4 million, or 19.7% to $181.2 million for the year ended December 31, 2020, compared to $225.6 million for the same period in 2019.

Operational and Balance Sheet Highlights

• During the year ended December 31, 2020, the Company issued $175 million of 4.402% Series G senior unsecured debentures due on September 28, 2023. The proceeds were used to repay the 4.013% Series B senior unsecured debentures at maturity on November 18, 2020.
  
  
• During the year ended December 31, 2020, the Company financed new and existing mortgages for additional net proceeds of $62.9 million at an average interest rate of 3.0%.
  
  
• Rent collections from all commercial asset classes have been strong with approximately 95% collected during the third and fourth quarters of 2020, compared to 86.6% collected during the second quarter of 2020.
  
  
• As at December 31, 2020, the Company's total assets were $11.1 billion compared to $11.7 billion as at December 31, 2019.
  
  
• During the year, occupancy was consistent across all commercial and residential 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 first quarter of 2020, Morguard purchased the remaining interest in Temple Hotels Inc. ("Temple") not already owned by the Company. All Temple shareholders, excluding Morguard, received $2.10 per common share from Morguard. Subsequently on February 19, 2020, Temple de-listed from the TSX.

Financial Highlights

For the years ending December 31
(in thousands of dollars, except per common share)	2020	2019
Revenue from real estate properties	$888,324	$872,223
Revenue from hotel properties	98,046	245,282
Management and advisory fees	42,080	52,401
Interest and other income	15,739	19,267
Total revenue	$1,044,189	$1,189,173
Revenue from real estate properties	$888,324	$872,223
Revenue from hotel properties	98,046	245,282
Property operating expenses - excluding bad debt expense	(378,266)	(368,038)
Property operating expenses - bad debt expense	(27,192)	(3,558)
Hotel operating expenses	(89,669)	(189,728)
Net operating income	$491,243	$556,181
Net income (loss) attributable to common shareholders	($98,918)	$186,939
Net income (loss) per common share – basic and diluted	($8.83)	$16.57
Funds from operations	$161,200	$250,871
FFO per common share – basic and diluted	$14.39	$22.23
Normalized funds from operations	$181,205	$225,612
Normalized FFO per common share – basic and diluted	$16.17	$19.99

2020 Rental Collections
As at February 25, 2021, the Company's collection of rental revenues during 2020 is summarized below by asset class:

Asset Class							% Rental
	Q1	Q2	Q3	October	November	December	Revenue
Residential	99.8%	99.6%	99.4%	99.0%	98.6%	98.2%	44.3%
Retail	98.3%	62.4%	85.6%	88.7%	87.1%	84.0%	27.1%
Office	99.9%	92.8%	98.1%	97.3%	96.9%	96.5%	27.3%
Industrial	100.0%	93.5%	96.9%	98.8%	98.3%	97.3%	1.3%
Total	99.4%	86.6%	95.0%	95.5%	94.6%	93.4%	100.0%

Liquidity
The Company has liquidity of approximately $564 million comprised of $142 million in cash and $422 million available under its revolving credit facilities. In addition, the Company has approximately $1,315 million of unencumbered income producing and hotel properties, and other investments which could be utilized for financing. To further enhance liquidity, the Company has narrowed down the scope of its capital expenditure program to ensure the availability of resources, allocating an amount that enables the Company to maintain the structural and overall safety of the properties. Management has also implemented various initiatives to reduce or defer operating expenses, property tax instalments, hydro payments and corporate income tax instalments. Management is also monitoring various government assistance programs in Canada and the U.S. structured to provide relief from personnel costs and commercial rent subsidies.

The Company has approximately $877.5 million of mortgages payable maturing during 2021 and 2022 having an aggregate loan-to-value ratio of 42% and a weighted-average interest rate of 3.9% which management expects to be able to refinance at similar or favourable terms. In addition, the Company has $200 million of senior unsecured debentures maturing in May 2021. The Company expects to be able to issue new debt instruments and use current liquidity sufficient to permit the repayment of its 2021 and 2022 maturities.

The duration and impact of the COVID-19 pandemic is unknown at this time. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial performance and financial position of the Company in future periods.

Morguard's strategically diversified asset portfolio and healthy, conservative debt ratios and financial resources provide strength against economic and real estate cycles. Morguard has always been driven by our commitment to real estate for the long term. Our experience has proven that this persistence has driven greater value for our shareholders year over year, and our diversified portfolio and conservative debt level positions us well against any potential challenges. We will continue to carry on with this approach.

Net Operating Income

NOI decreased by $65.0 million, or 11.7%, during the year ended December 31, 2020, to $491.2 million, compared to $556.2 million generated in 2019, and is further analyzed by asset type below.

For the years ending December 31
(in thousands of dollars)	2020	2019
Multi-suite residential	$227,565	$212,039
Retail	116,201	143,458
Office	131,836	136,480
Industrial	7,264	8,795
Hotels	8,377	55,554
Adjusted NOI	491,243	556,326
IFRIC 21 adjustment – multi-suite residential	-	(134)
IFRIC 21 adjustment – retail	-	(11)
NOI	$491,243	$556,181

Adjusted NOI for the year ended December 31, 2020, decreased by $65.1 million, or 11.7% to $491.2 million, compared to $556.3 million in 2019, primarily due to the following:

• An increase in the Canadian residential portfolio of $1.6 million, primarily from an increase in rental revenue from higher average monthly rent and lower repairs and maintenance expenditures from reduced non-essential spending, net of higher bad debt expense, increased vacancy and concessions given to existing tenants during the pandemic through August 2020;
  
  
• An increase in U.S. residential portfolio of US$9.4 million, primarily from an increase of US$9.6 million due to the acquisition of the remaining 51% interest in Marquee at Block 37, Chicago, Illinois, and consolidation of its equity investment interest during the fourth quarter of 2019, partially offset by lower NOI due to the sale of five properties located in Louisiana, during the first and second quarter of 2019;
  
  
• A decrease in the Canadian retail portfolio of $24.0 million, mainly due to an increase in bad debt expense of $18.0 million, resulting from failed tenants and an expected credit loss due to the economic impact of COVID-19, of which $4.0 million is due to the 25% landlord portion of the CECRA program, as well as a decrease of $4.2 million from lower recoveries and lower basic rent due to leases being restructured;
  
  
• A decrease in the office portfolio of $4.6 million, primarily due to an increase in bad debt expense of $3.3 million, in part from the 25% landlord portion of CECRA program and the economic impact of COVID-19, as well as lower basic rent, parking revenue and a decrease of $6.1 million due to a rent abatement at a property located in Calgary, Alberta, partially offset by the acquisition of two properties during 2019, which resulted in additional NOI of $7.5 million;
  
  
• A decrease in the hotel portfolio of $47.2 million, primarily due to a decrease of $61.3 million resulting from hotel closures, lower occupancy and lower revenue per available room due to current economic conditions experienced in all provinces as a result of the COVID-19 pandemic, partially offset by an increase of $14.1 million due to a provision for CEWS; and
  
  
• An increase of $4.0 million due to the change in the U.S. dollar foreign exchange rate.

Fair Value Gain (Loss) on Real Estate Properties

Fair value adjustments are determined based on the movement of various valuation parameters on a quarterly basis, including changes in projected cash flows as a result of leasing, capitalization rates, discount rates and terminal capitalization rates. During the year ended December 31, 2020, the Company recognized a net fair value loss on real estate properties of $511.5 million, compared to a net fair value gain of $27.1 million in 2019.

Fair value gain (loss) on real estate properties consists of the following:

For the years ending December 31
(in thousands of dollars, except per common share)	2020	2019
Multi-suite residential	$86,287	$72,823
Retail	(477,368)	(51,861)
Office	(134,417)	(14,511)
Industrial	11,603	13,600
Properties under development	-	(61)
Land held for development	2,423	7,067
	($511,472)	$27,057

For the year ended December 31, 2020, the Company recognized a net fair value gain of $86.3 million in the residential portfolio. The fair value gain is comprised of $196.3 million at the Canadian properties primarily as a result of a 25 basis point decrease in capitalization rates at properties located in the GTA as well as an increase in stabilized NOI, and a fair value loss of $110.0 million at the U.S. properties due to a decrease in stabilized NOI.

For the year ended December 31, 2020, the Company recognized a net fair value loss of $477.4 million in the retail portfolio. The fair value loss consists of $414.6 million at the Canadian properties predominantly due to a 25-50 basis point increase in capitalization rates and reductions in cash flow assumptions at most of the Company's enclosed malls due to COVID-19, and a fair value loss of $62.8 million at U.S. properties which was predominantly due to a 75 basis point increase in the capitalization rate at a property located in Louisiana and due to lower stabilized NOI.

For the year ended December 31, 2020, the Company recognized a net fair value loss of $134.4 million in the office portfolio. The fair value loss was mainly due to a 75 basis point increase in the capitalization rate and reductions in cash flow assumptions resulting from a lease amendment at a property located in Calgary, Alberta, and due to assumptions on the collectibility of rental revenue on cash flows due to COVID-19.

Funds From Operations

For the year ended December 31, 2020, the Company recorded FFO of $161.2 million ($14.39 per common share), compared to $250.9 million ($22.23 per common share) in 2019. The decrease in FFO of $89.7 million is mainly due to the following:

• A decrease in Adjusted NOI of $65.1 million, primarily due to lower Adjusted NOI from the hotel portfolio;
  
  
• A decrease in management and advisory fees of $10.3 million, primarily due to lower property management, asset management, leasing and disposition fees earned compared to 2019, partially offset by a provision for CEWS;
  
  
• A decrease in interest and other income of $3.5 million, mainly due to lower income earned from investments;
  
  
• An increase in interest expense of $5.8 million, mainly due to higher interest on unsecured debentures and amortization of deferred financing costs, partially offset by lower interest on convertible debentures, mortgages payable and loans payable;
  
  
• A decrease in property management and corporate expenses of $34.5 million, primarily due to a decrease in non-cash compensation expense related to the Company's Stock Appreciation Rights plan, a provision for CEWS and other corporate expenses;
  
  
• A decrease in current income taxes of $7.3 million;
  
  
• A decrease in the non-controlling interests' share of FFO of $13.0 million; and
  
  
• A decrease in unrealized changes in the fair value of the Company's financial instruments of $58.8 million.

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

The Company believes it is useful to provide an analysis of Normalized FFO which excludes non-recurring items on a net of tax basis and other fair value adjustments. Normalized FFO for the year ended December 31, 2020, was $181.2 million, or $16.17 per common share, versus $225.6 million, or $19.99 per common share, for the same period in 2019, which represents a decrease of $44.4 million, or 19.7%. 

First Quarter Dividend

The Board of Directors of Morguard Corporation announced that the first quarterly, eligible dividend of 2021 in the amount of $0.15 per common share will be paid on March 31, 2021, to shareholders of record at the close of business on March 15, 2021.

The Company's audited financial statements for the year ended December 31, 2020, 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, 2020 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 $19.0 billion. As at February 25, 2021, Morguard owns a diversified portfolio of 203 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,752 residential suites, approximately 16.9 million square feet of commercial leasable space and 5,517 hotel rooms. Morguard also currently owns a 60.9% interest in Morguard Real Estate Investment Trust and a 44.7% 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, T 905-281-3800; Paul Miatello, Chief Financial Officer, Senior Vice President, T 905-281-3800

Related Links

http://www.morguard.com