MISSISSAUGA, ON, Aug. 12, 2015 /CNW/ – Morguard Corporation (“Morguard” or the “Company”) (TSX: MRC) announced its financial results for the three months ended June 30, 2015.
Highlights
- On December 31, 2014, the Company commenced consolidating its investment in Morguard REIT. The impact of this change on the Company’s 2015 statement of income is significant since Morguard REIT’s revenue and expenses are fully consolidated into the Company’s operating results.
- Total revenue from real estate properties increased by $80.3 million to $196.9 million compared to $116.6 million in 2014.
- Adjusted net operating income (“Adjusted NOI”), which excludes the impact of IFRIC 21, increased by $46.4 million to $106.3 million compared to $59.9 million for the same period in 2014.
- Funds from operations â Morguard’s Share (“Morguard’s share of FFO”) increased by 68.5% to $49.7 million for the three months ended June 30, 2015, compared to $29.5 million for the same period in 2014.
- Morguard’s share of normalized FFO increased by 28.2% to $49.1 million, or $4.00 per share, for the three months ended June 30, 2015, compared to $38.3 million, or $3.06 per share, for the same period in 2014.
- The Company repurchased 66,000 of its common shares for total consideration of $10.2 million, representing an average price of $154.50 per common share.
- The Company acquired 185,150 units of Morguard REIT for $3.1 million, representing an average purchase price of $16.85 per unit. The Company’s ownership interest in Morguard REIT now stands at 47.4%.
All amounts in thousands of Canadian dollars, except for per share amounts, unless otherwise noted.
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Financial Highlights |
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Three months ended |
Six months ended June 30 |
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|
(in thousands of dollars) |
2015 |
2014 |
2015 |
2014 |
|
|
Revenue from income producing properties |
$196,949 |
$116,556 |
$395,887 |
$234,759 |
|
|
Management and advisory fees |
16,064 |
16,302 |
30,149 |
32,499 |
|
|
Interest and other |
3,009 |
2,983 |
4,861 |
7,290 |
|
|
Sales of product and land |
1,438 |
1,231 |
5,110 |
2,516 |
|
|
Total revenues |
$217,460 |
$137,072 |
$436,007 |
$277,064 |
|
|
Revenue from real estate properties |
$196,949 |
$116,556 |
$395,887 |
$234,759 |
|
|
Property operating costs |
(85,593) |
(52,129) |
(194,894) |
(124,256) |
|
|
Net operating income |
$111,356 |
$64,427 |
$200,993 |
$110,503 |
|
|
Funds from operations |
$54,034 |
$35,380 |
$95,600 |
$79,292 |
|
|
FFO per share â basic and diluted |
$4.40 |
$2.83 |
$7.76 |
$6.32 |
|
|
Morguard’s share of FFO |
$49,703 |
$29,492 |
$87,210 |
$67,896 |
|
|
Per share â basic and diluted |
$4.05 |
$2.36 |
$7.08 |
$5.41 |
|
|
Net income for the period |
$30,966 |
$32,273 |
$35,505 |
$59,018 |
|
|
Net income per share â basic and diluted |
$3.16 |
$2.57 |
$2.65 |
$4.69 |
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Target Canada Update
During the second quarter the Company successfully re-negotiated its Target leases at Centerpoint Mall, Toronto, ON, Pine Centre, Prince George, BC, Southdale Shopping Centre, Winnipeg, MB and Aurora Centre, Aurora, ON. The replacement of the Target stores with Lowes, Walmart and Canadian Tire significantly improve the tenant strength and will help to drive increased traffic to these centres. The Company successfully acquired the Target lease at The Centre at Circle and Eighth, Saskatoon, SK to maintain control of the space to improve the centre. The leases at Bramalea City Centre, Brampton, ON, East York Town Centre, Toronto, ON Cambridge Centre, Cambridge, ON, Brandon Shoppers Mall, Brandon, MB and Prairie Mall, Grand Prairie, AB were disclaimed by Target. The Company is currently executing on re-merchandising the Target units into multi-unit space. The space vacated by Target equates to the early termination of approximately 604,000 square feet and as a result, the Company’s retail occupancy has decreased to 85.8%. Adjusting for the vacant Target space, the Company’s retail occupancy rate has held firm at 92.5%. The Company ceased recording revenue on the disclaimed leases until all outstanding amounts under the Target U.S. guarantee have been received. This has resulted in a negative impact on the Company’s second quarter net operating income of $0.6 million.
Net Income
Net income for the three months ended June 30, 2015, was $31.0 million ($2.52 per share), compared to $32.3 million ($2.58 per share) in 2014. The decrease in net income of $1.3 million for the three months ended June 30, 2015, was primarily due to the following items:
- A decrease in fair value gains of $31.4 million;
- A decrease in equity income from investments of $14.9 million;
- An increase in interest expense of $10.9 million;
- An increase in net operating income of $46.9 million;
- A decrease in income taxes of $4.7 million; and
- A decrease in other expense of $5.9 million.
Net Operating Income
The consolidation of Morguard REIT significantly impacted the Company’s operating results for the three months ended June 30, 2015, compared to the same period in 2014. In order to enhance comparability and illustrate the impact Morguard REIT has had on the Company’s 2015 NOI, the NOI directly attributable to Morguard REIT has been isolated in the column titled “Morguard REIT”. The column titled “Morguard” represents the revenue and expenses for all properties that were included in the Company’s operating results for 2014 (the “Morguard Properties”).
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Three months ended June 30, (in thousands of dollars) |
2015 |
2014 |
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Morguard |
Morguard |
Total |
Morguard |
|
|
Multi-unit residential |
$36,156 |
$- |
$36,156 |
$32,880 |
|
Retail |
14,222 |
21,602 |
35,824 |
14,067 |
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Office |
11,057 |
19,046 |
30,103 |
9,378 |
|
Industrial and Hotels |
3,436 |
788 |
4,224 |
3,597 |
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Adjusted NOI |
64,871 |
41,436 |
106,307 |
59,922 |
|
IFRIC 21 adjustment â multi-unit residential |
4,177 |
– |
4,177 |
3,482 |
|
IFRIC 21 adjustment â retail |
872 |
872 |
1,023 |
|
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Net operating income |
$69,920 |
$41,436 |
$111,356 |
$64,427 |
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Six months ended June 30, (in thousands of dollars) |
2015 |
2014 |
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|
Morguard |
Morguard |
Total |
Morguard |
|
|
Multi-unit residential |
$71,035 |
$- |
$71,035 |
$63,933 |
|
Retail |
28,171 |
44,866 |
73,037 |
27,150 |
|
Office |
21,425 |
35,568 |
59,993 |
22,325 |
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Industrial and Hotels |
5,994 |
1,836 |
7,830 |
6,301 |
|
Adjusted NOI |
126,625 |
85,270 |
211,895 |
119,709 |
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IFRIC 21 adjustment â multi-unit residential |
(8,130) |
– |
(8,130) |
(7,079) |
|
IFRIC 21 adjustment â retail |
(2,772) |
– |
(2,772) |
(2,127) |
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Net operating income |
$115,723 |
$85,270 |
$200,993 |
$110,503 |
Adjusted NOI for the three months ended June 30, 2015, increased by $46.4 million to $106.3 million compared to $59.9 million in 2014, representing an increase of 77.4%. Excluding the impact of the Morguard REIT consolidation of $41.4 million, Adjusted NOI increased by $4.9 million primarily due to the following:
- Increased rental rates and occupancy for the multi-unit residential portfolio ($0.8 million);
- Continued lease-up of Performance Court Ottawa, Ontario ($0.9 million); and
- Positive impact of the change in the U.S. dollar foreign exchange rate ($3.3 million).
Funds from Operations
For the three months ended June 30, 2014, the Company recorded FFO of $54.0 million ($4.40 per share), compared to $35.4 million ($2.83 per share) in 2014. The increase in FFO of $18.6 million is mainly due to the following:
- Higher adjusted net operating income of $4.9 million from the Morguard Properties;
- An impairment provision recorded on investment in publicly traded securities of $8.8 million recorded in 2014;
- Amortization of the mortgage mark-to-market adjustment of $3.3 million which was recorded on the acquisition of Morguard REIT; and
- A decrease in current taxes of $1.3 million.
The change in foreign exchange rates had a positive impact on FFO of $1.6 million ($0.13 per share).
Funds from Operations – Morguard’s Share
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Three months ended |
Six months ended June 30 |
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|
(in thousands of dollars, except for per share amounts) |
2015 |
2014 |
2015 |
2014 |
|
Funds from operations |
$54,034 |
$35,380 |
$95,600 |
$79,292 |
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Less: non-controlling interest: Morguard Residential REIT |
(4,331) |
(5,888) |
(8,390) |
(11,396) |
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Funds From Operations – Morguard’s share |
$49,703 |
$29,492 |
$87,210 |
$67,896 |
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Per share amounts â basic and diluted |
$4.05 |
$2.36 |
$7.08 |
$5.41 |
The Company’s FFO includes funds available to the non-controlling interests of Morguard North American Residential REIT. Morguard’s share of FFO removes the non-controlling interest. Morguard’s share of FFO for the three months ended June 30, 2015, totalled $49.7 million or $4.05 per share, compared to $29.5 million or $2.36 per share in 2014.
Morguard’s share of normalized FFO includes a number of non-recurring items that significantly impact the result. The significant non-recurring items are (i) unrealized gain of $0.7 million from investment in convertible debentures in 2015; and (ii) an impairment provision for investment in publicly traded securities of $8.8 million in 2014. Morguard’s share of FFO for the period ended June 30, 2015 would have been $49.1 million or $4.00 per share versus $38.3 million or $3.06 per share for the same period in 2014, which represents an increase of $10.8 million or 28.2%.
Third Quarter Dividend
The board of directors of Morguard Corporation announced that the third quarterly, eligible dividend of 2015 in the amount of $0.15 per common share will be paid on September 30, 2015, to shareholders of record at the close of business on September 15, 2015.
Readers are cautioned that although the terms “Net Operating Income”, “Adjusted Net Operating Income”, “Funds From Operations”, “Funds From Operations â Morguard’s Share” and “Normalized Funds From Operations â Morguard’s Share”, are commonly used to measure, compare and explain the operating and financial performance of Canadian real estate companies and such terms are defined in the Management’s Discussion and Analysis, such terms are not recognized terms under Canadian generally accepted accounting principles. Such terms do not necessarily have a standardized meaning and may not be comparable to similarly titled measures presented by the other publicly traded entities.
The Company’s unaudited financial statements for the three months ended June 30, 2015, along with the 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.
About Morguard Corporation
Morguard Corporation is a real estate company, which owns a diversified portfolio of 170 multi-unit residential, retail, office, industrial and hotel properties comprising of 16,674 multi-unit residential suites, approximately 16.3 million square feet of commercial leasable space and 1,056 hotel rooms. Morguard Corporation also currently owns a 47.4% interest in Morguard Real Estate Investment Trust and a 48.7% 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
