Morguard Corporation Announces 2015 First Quarter Results and Regular Eligible Dividend

TSX: MRC

MISSISSAUGA, ON, May 12, 2015 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) announced its financial results for the three months ended March 31, 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 $80.7 million to $198.9 million compared to $118.2 million in 2014.
• Adjusted net operating income ("Adjusted NOI"), which excludes the impact of IFRIC 21, increased by $45.8 million to $105.6 million compared to $59.8 million for the same period in 2014.
• Funds from operations ("FFO") decreased by 5.2% to $41.6 million for the three months ended March 31, 2015, compared to $43.9 million for the same period in 2014.
• Normalized FFO increased by 18.4% to $48.4 million, or $3.93 per share, for the three months ended March 31, 2015, compared to $40.9 million, or $3.25 per share, for the same period in 2014.
• The Company repurchased 83,390 of its common shares for total consideration of $12.5 million, representing an average price of $149.99 per common share.
• Acquisition of 990,905 units of Morguard REIT for $18.0 million, representing an average purchase price of $18.20 per unit. The Company's ownership interest in Morguard REIT now stands at 46.9%.
• On February 3, 2015, the Company acquired a 60% ownership interest in Lincluden Investment Management Limited. Lincluden manages $3.6 billion of equities and fixed income instruments for institutional and private clients.

All amounts in thousands of Canadian dollars, except for per share amounts, unless otherwise noted.

TARGET CANADA UPDATE

Morguard is also announcing the following update with respect to its tenancies formerly occupied by Target Canada Corporation.  Canadian Tire has reached an agreement to assume the lease on the former Target store at Aurora Centre, Aurora, ON and Wal-Mart has agreed to assume the former Target lease at Southdale Centre, Winnipeg, MB.  The deals are subject to approval by the court appointed monitor. 

Additionally, the Company is in discussions with Lowe's Canada who has expressed an interest in assuming the leases at Centerpoint Mall, Toronto, ON and Pine Centre, Prince George, BC.  The Company has received notice from Target Canada that they have disclaimed leases in five  properties owned or co-owned by the Company.  In the near term, the leases are still indemnified by Target's U.S. parent.  The properties disclaimed are Prairie Mall, Grand Prairie, AB, Shoppers Mall, Brandon, MB, Cambridge Centre, Cambridge, ON, Bramalea City Centre, Brampton, ON (21% co-ownership interest) and East York Town Centre.  These stores represent 0.5 million square feet of gross leasable area and gross annualized revenue of $3.6 million.

Subsequent to receiving the disclaimer notices, the Company has commenced negotiations with potential retailers to improve the tenant mix and tenant covenant.

This update confirms the resolution of nine of the Company's ten Target locations.

NET INCOME

Net income for the three months ended March 31, 2015, was $4.5 million ($0.37 per share), compared to $26.7 million ($2.13 per share) in 2014. The decrease in net income of $22.2 million for the three months ended March 31, 2015, was primarily due to the consolidation of Morguard REIT having a significant impact on the following items:

• An increase in net operating income of $43.6 million;
• A decrease in equity income of $15.1 million;
• A decrease in management and advisory fees of $2.1 million;
• An increase in interest expense of $10.6 million; and
• An increase in property management and corporate expenses of $2.0 million.

In addition to the items noted above the Company recorded lower fair value gains in the amount of $26.4 million and higher deferred income tax expense in the amount of $9.6 million.

NET OPERATING INCOME

The consolidation of Morguard REIT significantly impacted the Company's operating results for the three months ended March 31, 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.

Adjusted NOI for the three months ended March 31, 2015, increased by $45.8 million to $105.6 million compared to $59.8 million in 2014, representing an increase of 76.6%. Excluding the impact of the Morguard REIT consolidation of $43.8 million, Adjusted NOI increased by $2.0 million primarily due to the following:

• Increased rental rates and occupancy for the multi-unit residential portfolio ($1.3 million);
• Continued lease-up of Performance Court and The Heathview's North Tower ($0.9 million); and
• Positive impact of the change in the U.S. dollar foreign exchange rate ($3.2 million).

Partially offset by:

• A net lease cancellation fee of $4.1 million recorded in 2014 from an office tenant that surrendered a portion of their space on January 1, 2014, which has since been re-leased and contributed $0.5 million to Adjusted NOI in Q1 2015.

FUNDS FROM OPERATIONS

For the three months ended March 31, 2014, the Company recorded FFO of $41.6 million ($3.37 per share), compared to $43.9 million ($3.49 per share) in 2014. The decrease in FFO of $2.3 million is mainly due to an increase in:

• Adjusted NOI of $45.8 million;
• Net sale of product and land of $0.9 million;
• Equity income from investments, excluding Morguard REIT, of $1.0 million; and
• Reduction in current taxes of $1.7 million.

These items were offset by:

• Morguard REIT's equity accounted FFO of $11.3 million recorded in 2014;
• Increase in interest expense of $10.6 million;
• Impairment provision for investment in publicly traded securities of $6.1 million;
• Higher property management and corporate expenses of $2.0 million;
• Lower management and advisory fees of $2.1 million;
• Non controlling interest's share of FFO of $16.9 million; and
• Reduction in interest and other income of $2.5 million.

The change in foreign exchange rates had a positive impact on FFO of $1.6 million ($0.13 per share).

Normalized FFO includes a number of non-recurring items that significantly impact the result.  The significant non-recurring items are (i) unrealized loss of $0.8 million from investment in convertible debentures in 2015; (ii) an impairment provision for investment in publicly traded securities of $6.1 million in 2015; (iii) the lease cancellation fee, net of straight line rent write off received in 2014 of $4.1 million. FFO for the period ended March 31, 2015 would have been $48.4 million or $3.93 per share versus $40.9 million or $3.25 per share for the same period in 2014, which represents an increase of $7.5 million or 18.4%.

Funds From Operations - Morguard's Share

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 March 31, 2015, totalled $37.5 million or $3.04 per share, compared to $38.3 million or $3.05 per share in 2014.

SECOND QUARTER DIVIDEND

The board of directors of Morguard Corporation announced that the second quarterly, eligible dividend of 2015 in the amount of $0.15 per common share will be paid on June 30, 2015 to shareholders of record at the close of business on June 15, 2015.

NORMAL COURSE ISSUER BID

Morguard has obtained approval from the Toronto Stock Exchange ("TSX") to amend its normal course issuer bid ("NCIB") announced September 15, 2014.

In addition to purchases made through the facilities of the TSX, the Company and its designated broker may make purchases on alternative Canadian trading platforms.  Daily purchases will be limited to 1,000 Common shares, subject to the Company's ability to rely upon the block purchase exception under the TSX rules.  All purchases will be made at market prices and otherwise in accordance with the rules of the TSX and all Common Shares purchased under the NCIB will be cancelled.  Pursuant to the NCIB, which commenced on September 22, 2014 and expires on September 21, 2015, the Company purchased 83,390 Common Shares during the quarter ended March 31, 2015.

Readers are cautioned that although the terms "Net Operating Income", "Adjusted Net Operating Income", "Funds From Operations", "Normalized Funds From Operations" and "Funds From Operations – 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 March 31, 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.

Morguard Corporation is a real estate company, which owns a diversified portfolio of 172 multi-unit residential, retail, office, industrial and hotel properties comprising of 16,674 multi-unit residential suites, approximately 16.5 million square feet of commercial leasable space and 1,056 hotel rooms. Morguard Corporation also currently owns a 46.9% 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