Morguard Real Estate Investment Trust Announces 2020 Third Quarter Results
MISSISSAUGA, ON, Oct. 28, 2020 /CNW/ - Morguard Real Estate Investment Trust ("the Trust") (TSX: MRT.UN) today is pleased to announce its financial results for the nine month period ending September 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 |
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In thousands of dollars, except per-unit |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
Amounts |
2020 |
2019 |
2020 |
2019 |
Revenue from real estate properties |
$60,596 |
$66,363 |
$186,269 |
$203,825 |
Net operating income |
28,497 |
36,387 |
90,525 |
111,204 |
Fair value losses on real estate properties |
(101,415) |
(14,928) |
(333,962) |
(45,210) |
Net (loss)/income |
(88,116) |
6,254 |
(289,485) |
18,468 |
Funds from operations |
14,367 |
21,721 |
47,477 |
66,806 |
Adjusted funds from operations 1 |
11,451 |
15,796 |
35,214 |
48,493 |
Amounts presented on a per unit basis |
||||
Net (loss)/income – basic |
($1.41) |
$0.10 |
($4.70) |
$0.30 |
Net (loss)/income – diluted |
($1.41) |
$0.10 |
($4.70) |
$0.30 |
Funds from operations – basic |
$0.23 |
$0.36 |
$0.77 |
$1.10 |
Funds from operations – diluted |
$0.23 |
$0.34 |
$0.76 |
$1.05 |
Adjusted funds from operations – basic 1 |
$0.18 |
$0.26 |
$0.57 |
$0.80 |
Adjusted funds from operations – diluted 1 |
$0.18 |
$0.26 |
$0.57 |
$0.78 |
Distributions per unit |
$0.12 |
$0.24 |
$0.52 |
$0.72 |
CONSOLIDATED OPERATING HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 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 September 30, 2020, decreased 8.7% to $60.6 million from $66.4 million for the same period in 2019. This decrease is primarily due to increased vacancy, failed tenants on restructured arrangements, 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.
IFRS requires the Trust to establish an expected credit loss on these amounts taking into account the credit worthiness of the tenants. The Trust concluded that the most effective manner in establishing such an allowance was to consider the credit loss from failed tenants as well as the expected credit loss on the remaining tenants. A bad debt expense of $4.3 million has been recorded in relation to the arrears for the quarter.
Property operating expenses (excluding bad debts) for the three months ended September 30, 2020, decreased 10.2% to $13.8 million from $15.4 million for the same period in 2019. This decrease is primarily due to lower repair and maintenance expenses compared to the same period in 2019, coupled with $0.5 million recorded in 2020 for the CEWS wage subsidy.
Net operating income for the three months ended September 30, 2020, declined 21.7% as compared to 2019. This decline was due to bad debt expense recorded for the quarter in addition to the decline in income for Penn West Plaza.
Interest expense for the three months ended September 30, 2020, decreased 3.1% to $14.1 million from $14.5 million for the same period in 2019. This decline is primarily due to the low interest rate environment and the impact on rates paid on the Trust's lines of credit and mortgages renewed.
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 nine 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 September 30, |
Nine Months Ended September 30, |
|||
2020 |
2019 |
2020 |
2019 |
|
Retail – enclosed regional centres |
($85,037) |
($4,499) |
($255,924) |
($45,083) |
Retail – community strip centres |
(2,426) |
(14) |
(12,717) |
10,319 |
Office |
(13,685) |
(10,969) |
(63,889) |
(10,546) |
Industrial |
(267) |
554 |
(1,432) |
100 |
($101,415) |
($14,928) |
($333,962) |
($45,210) |
|
The IFRS value of the Trust's enclosed mall portfolio has been reduced by $255.9 million since December 31, 2019. This included an average cap rate increase of 25 basis points in each of the first and third quarters along with changes in cash flow parameters. The significant changes to inputs into the forecasting of cash flows, include 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.
The office fair value decline is due to the decline in Penn West Plaza arising from the discussions and resulting rent reduction granted to Obsidian, along with more conservative cash flow modelling assumptions resulting from the COVID-19 pandemic.
Reported net loss for three months ended September 30, 2020, was $88.1 million as compared to net loss of $6.3 million in 2019. This change is due to the fair value losses recorded in 2020, as described above.
COLLECTIONS UPDATE
As a result of the COVID-19 pandemic, certain medium and larger size tenants were unable to fulfil their rent obligations. MIL is working with all tenants that have arrears to review their situation and to consider rent payment solutions as necessary. Typically, these discussions relate to the rent owing for April, May and June 2020 as part of the economic shutdown. There are a large number of retail tenants who have requested consideration for a deferral or an abatement. Deferrals and abatements are being considered and granted on a case-by-case basis, depending on the financial condition of the tenant, and their fact situation in relation to how the pandemic impacted their operations. It was difficult to engage with tenants in a meaningful manner in regards to their arrears until they had visibility as to the economic landscape post closure, as well as having a more comprehensive understanding of the CECRA program. The rent payment solutions that have been agreed to have typically involved an exchange of rights or additional lease term for the negotiated deferral or abatement. These discussions and negotiations are time consuming and could not be given full priority by MIL until work was completed on the CECRA program in September. Discussions and negotiations are ongoing with the tenants and amended agreements are expected to be in place for all tenants by the end of the year.
MIL invoices contracted rent (including base rent, property taxes and common area maintenance charges) on the first of every month. Appropriate sales taxes are included in these billings depending upon the provincial jurisdiction.
The following is an analysis of collections (from tenants and the CECRA program) of invoiced contracted rent by segment, by month, including expected collections for October 2020:
Approximate |
Percentage as of October 27, 2020 |
|||||
Contribution to |
July |
August |
September |
October |
||
Revenue |
Q2 2020 |
2020 |
2020 |
2020 |
2020 |
|
Industrial |
1% |
91% |
91% |
91% |
91% |
85% |
Office |
43% |
93% |
93% |
92% |
96% |
96% |
Retail – community strip centres |
15% |
86% |
89% |
94% |
95% |
93% |
Retail – enclosed regional centres |
41% |
53% |
72% |
79% |
76% |
74% |
Total |
100% |
76% |
84% |
87% |
88% |
87% |
After considering abatements, deferrals, collections and write-offs reflected to date, the following represents the percentage of rent that has been addressed:
Percentage of as October 27, 2020 |
|||||
July |
August |
September |
October |
||
Q2 2020 |
2020 |
2020 |
2020 |
2020 |
|
Industrial |
98% |
99% |
99% |
99% |
85% |
Office |
96% |
98% |
96% |
97% |
96% |
Retail – community strip centres |
97% |
98% |
99% |
99% |
93% |
Retail – enclosed regional centres |
78% |
77% |
84% |
80% |
74% |
Total |
89% |
89% |
92% |
91% |
87% |
FINANCIAL UPDATE
The Trust has available liquidity of $127.0 million as of September 30, 2020, and also has an unencumbered asset pool of $320.9 million in order to raise necessary capital, if required. Available liquidity as of December 31, 2019, was $51.9 million.
Amount |
|
Lines of Credit |
$185,000 |
Drawn at September 30, 2020 |
(66,846) |
Availability as September 30, 2020 |
118,154 |
Cash |
8,838 |
Liquidity as of September 30, 2020 |
$126,992 |
During the third quarter of 2020, the Trust completed multiple mortgage renewals. These renewals totalled $118.5 million and produced upfinancing proceeds of $69.5 million and were contracted at an average interest rate of 3.0%.
Subsequent to September 30, 2020, the Trust closed on a further mortgage renewal totalling $40.0 million, producing upfinancing proceeds of $7.3 million at an interest rate of 2.89%.
Taking into account the post quarter end closing, the Trust's weighted average interest rate on mortgages declined to 3.9% from 4.1% at December 31, 2019.
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 Q3 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: |
Thursday October 29, 2020 4:00 p.m. (ET) |
Conference Call #: |
416-764-8688 or 1-888-390-0546 |
Conference ID #: |
49747036 |
About Morguard Real Estate Investment Trust
The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 47 retail, office and industrial income producing properties in Canada with a book value of $2.6 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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