Morguard Real Estate Investment Trust Announces 2020 Second Quarter Results, Provides Operational Update Related to COVID-19
MISSISSAUGA, ON, July 29, 2020 /CNW/ - Morguard Real Estate Investment Trust ("the Trust") (TSX: MRT.UN) today is pleased to announce its financial results for the six month period ending June 30, 2020. These results have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Also included is a brief operational and liquidity update as we continue to focus on managing through the COVID-19 pandemic and the resulting economic impact.
Financial Highlights
Three Months Ended June 30, |
Six Months Ended June 30, |
|||
In thousands of dollars, except per-unit amounts |
2020 |
2019 |
2020 |
2019 |
Revenue from real estate properties |
$59,300 |
$67,008 |
$125,673 |
$137,462 |
Net operating income |
27,200 |
36,957 |
62,028 |
74,817 |
Fair value losses on real estate properties |
(111,430) |
(24,602) |
(232,547) |
(30,282) |
Net (loss)/income |
(98,814) |
(4,701) |
(201,369) |
12,214 |
Funds from operations |
13,152 |
21,999 |
33,110 |
45,085 |
Adjusted funds from operations |
10,032 |
15,838 |
23,763 |
32,697 |
Amounts presented on a per unit basis |
||||
Net (loss)/income – basic |
($1.60) |
($0.08) |
($3.29) |
$0.20 |
Net (loss)/income – diluted |
($1.60) |
($0.08) |
($3.29) |
$0.20 |
Funds from operations – basic |
$0.21 |
$0.36 |
$0.54 |
$0.74 |
Funds from operations – diluted |
$0.21 |
$0.35 |
$0.53 |
$0.71 |
Adjusted funds from operations – basic |
$0.16 |
$0.26 |
$0.39 |
$0.54 |
Adjusted funds from operations – diluted |
$0.16 |
$0.26 |
$0.39 |
$0.53 |
Distributions per unit |
$0.16 |
$0.24 |
$0.40 |
$0.48 |
CONSOLIDATED OPERATING HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2020
Revenue from real estate properties includes contracted rent from tenants along with recoveries of property expenses (including property taxes). Revenue for the three months ended June 30, 2020, decreased 11.5% to $59.3 million from $67.0 million for the same period in 2019. This decrease is primarily due to reduced recoveries of operating costs and the rent relief granted to Obsidian Energy Limited ("Obsidian").
On March 30, 2020, the Trust announced the conclusion of its discussions with Obsidian regarding its tenancy in Penn West Plaza. It is estimated that this abatement will represent an annual reduction in the Trust's net operating income in the range of $6.5-$7.0 million.
Allowance for doubtful accounts
The Trust has $24.3 million in Q2 2020 rent arrears outstanding as of June 30, 2020. IFRS requires the Trust to establish an expected credit loss on these arrears taking into account the credit worthiness of the tenants responsible for the arrears. The Trust concluded that the most effective manner in establishing such an allowance was to consider the different components relating to (a) abatements granted through CECRA participation; and (b) future expected credit loss (including failed tenants). Abatements typically do not get recorded through the allowance for doubtful accounts and instead are considered to be a lease modification and are recorded on a straight-line basis throughout the life of the lease. A bad debt expense of $5.5 million has been recorded in relation to the above arrears.
Fair market value adjustments
The Trust records its income producing properties at fair value in accordance with IFRS. The financial results include fair value adjustments that are more significant than previous periods (for both the three month and six month periods). These adjustments are a result of the Trust's regular quarterly IFRS fair value process and include the impact of COVID-19 on the enclosed regional centres from the challenging retail landscape. In accordance with this policy, the following fair value adjustments by segment have been recorded:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||
2020 |
2019 |
2020 |
2019 |
|
Retail – enclosed regional centres |
($74,072) |
($29,446) |
($170,886) |
($40,556) |
Retail – community strip centres |
(9,358) |
(2,572) |
(10,292) |
10,305 |
Office |
(26,652) |
8,183 |
(50,204) |
423 |
Industrial |
(1,348) |
(767) |
(1,165) |
(454) |
($111,430) |
($24,602) |
($232,547) |
($30,282) |
|
The IFRS value of the Trust's enclosed mall portfolio has been reduced by $170.9 million since December 31, 2019. This included an average cap rate adjustment of 25 basis points in the first quarter along with changes in cash flow parameters in the second quarter. The second quarter changes represent changes to inputs into the forecasting of cash flows, including normalized vacancy rates, market rental rates, releasing assumptions and credit assumptions. The revised inputs into the discounted cash flow models have resulted in lower fair market values and higher implied overall cap rates.
Reported net loss for three months ended June 30, 2020, was $98.8 million as compared to net loss of $4.7 million in 2019. This change was attributed to the fair value losses recorded in 2020.
COVID-19 UPDATE
In March 2020 the outbreak of the novel strain of coronavirus ("COVID-19") resulted in governments enacting emergency measures to combat the spread of the virus. These measures, included the implementation of travel bans, quarantine periods and physical distancing, and have contributed to an economic recession along with material disruption to business. Governments have reacted with interventions intended to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, although the curtailment of spread in Canada is encouraging.
Management has concluded that it is important for the Trust to play an important role in helping the tenants that have been negatively impacted by the pandemic. As such, the Trust is participating in the Canada Emergency Commercial Rent Assistance ("CECRA") program as described below and have also been in discussions with larger tenants on a case-by-case basis to determine rent payment solutions.
The Government of Canada has partnered with the provincial governments to deliver the CECRA program. The program is intended to provide relief for small business tenants of commercial landlords who are experiencing financial difficulties during the COVID-19 Pandemic.
Over the course of the program, property owners that participate in the program will reduce rent by at least 75% for the months of April, May, June, and July 2020 for their small business tenants that qualify. The Government of Canada, via a forgivable loan, will cover 50% of the rent, with the tenant paying up to 25% and the landlord forgiving at least 25%.
COLLECTIONS UPDATE
Due to non-essential business closure orders issued by the various provinces in Canada, the majority of the Trust's retail tenants were closed for portions of the second quarter. The easing of these restrictions varied by province and by industry. All of the Trust's enclosed malls are now open and the vast majority of tenants are allowed to operate.
The following is an analysis of collections by segment, by month, including expected collections for July 2020:
Approximate Contribution to |
Percentage Collections as of July 28, 2020 |
||||
Revenue |
April 2020 |
May 2020 |
June 2020 |
July 2020 |
|
Industrial |
1% |
76% |
71% |
69% |
67% |
Office – west |
23% |
99% |
98% |
98% |
99% |
Office – east (Ontario and Quebec) |
20% |
89% |
86% |
78% |
80% |
Retail – community strip centres |
15% |
80% |
78% |
76% |
81% |
Retail – enclosed regional centres |
41% |
39% |
39% |
46% |
56% |
Total |
100% |
70% |
69% |
70% |
75% |
Management is working with all tenants that have arrears to review their situation and to consider rent payment solutions as necessary.
OPERATIONAL UPDATE
In response to the decline in collections, there has been a deferral of discretionary capital spending. Also, available deferrals of sales taxes, payroll taxes, property taxes and utility payments offered by the various levels of government have been acted upon. However, most of these deferrals initially acted upon have been reversed by the end of the second quarter.
The amount of PCME spending for 2020 will be less than typical levels. Discretionary spending is being reviewed in order to consider deferrals to later periods. The Trust has narrowed the scope of its capital expenditure program to ensure the availability of resources. Leasing capital will still be spent as opportunities arise in addition to capital needed for any structural or safety purposes. The development project at The Centre in Saskatoon is ongoing and the project at Pine Centre in Prince George is complete, pending the lease up of the remaining space.
FINANCIAL UPDATE
The Trust has available liquidity of $54.0 million as of June 30, 2020, and also has an unencumbered asset pool of $327.7 million in order to raise necessary capital, if required. Available liquidity as of December 31, 2019, was $51.9 million.
Amount |
|
Line of credit availability |
$47,694 |
Cash |
6,257 |
Liquidity |
53,951 |
Estimated upfinancing closing in Q3 2020 |
75,000 |
Asset held for sale (closing August 2020) |
6,800 |
Pro-Forma liquidity |
$135,751 |
The Trust is working on a number of financings which will provide additional upfinancing proceeds of approximately $75.0 million. All of these financings are mortgages that mature in the third quarter of 2020.
Further, there is an asset that is under contract for sale which is expected to close in August 2020 for estimated proceeds of $6.8 million. This asset is known as Home Base in Ottawa, and has been vacant for the last two years.
Net Operating Income, Funds from Operations
This press release and accompanying financial information make reference to net operating income and funds from operations on a total and per unit basis. Net operating income is defined as income from property operations after operating expenses have been deducted, but prior to deducting interest expense, general and administrative expenses and fair value gains/(losses). The Trust presents FFO in accordance with the Real Property Association of Canada white paper on funds from operations and adjusted funds from operations for IFRS. FFO is a non- GAAP measure that is widely accepted as a supplemental measure of financial performance for real estate entities. In accordance with such white paper, the Trust defines FFO as net income adjusted for fair value changes on real estate properties and gains/(losses) on the sale of real estate properties.
Financial Statements and Management's Discussion and Analysis
The Trust's Q2 2020 Consolidated Financial Statements and Management's Discussion and Analysis will be made available on the Trust's website at www.morguard.com and have been filed with SEDAR at www.sedar.com
Conference Call Details: |
|
Date: |
Thursday July 30, 2020 4:00 p.m. (ET) |
Conference Call #: |
416-764-8688 or 1-888-390-0546 |
Conference ID #: |
16342298 |
About Morguard Real Estate Investment Trust
The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 48 retail, office and industrial income producing properties in Canada with a book value of $2.8 billion and approximately 8.3 million square feet of leasable space.
SOURCE Morguard Real Estate Investment Trust
Morguard Real Estate Investment Trust, K. Rai Sahi, President and Chief Executive Officer, T 905-281-4800; Andrew Tamlin, Chief Financial Officer, T 905-281-4800
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