Morguard Corporation Announces 2012 First Quarter Results

TSX: MRC

MISSISSAUGA, ON, May 9, 2012 /CNW/ - Morguard Corporation (TSX: MRC) announced its financial results for the three months ended March 31, 2012.

HIGHLIGHTS

• On April 18, 2012, the Company completed an initial public offering ("IPO") of trust units of Morguard North American Residential Real Estate Trust (the "Morguard Residential REIT");
• Funds from operations increased by 29.0% to $42.7 million, or $3.30 per share, compared to $33.1 million, or $2.55 per share in 2011;
• Total revenues increased by 4.3% to $98.1 million compared to $94.0 million in 2011;
• Total net operating income increased by 4.7% to $41.5 million compared to $39.6 million in 2011; and
• Net income attributable to common shareholders totalled $51.7 million compared to $57.2 million in 2011

MORGUARD NORTH AMERICAN RESIDENTIAL REAL ESTATE INVESTMENT TRUST

On April 18, 2012, the Company completed an IPO of trust units of the Morguard Residential REIT.  The offering raised gross proceeds of $75 million.  A total of 7,500,000 trust units were sold at a price of $10.00 per trust unit.  On April 24, 2012, the underwriters exercised in full their over-allotment option to purchase 750,000 additional trust units at a price of $10.00 per trust unit, which increased the total gross proceeds of the offering to $82.5 million.  The net proceeds received by Morguard (net of underwriters' commission) was $77.6 million.  The Company retained an effective interest in Morguard Residential REIT of 67.6%.  Upon completion of the IPO, the Company sold to subsidiaries of Morguard Residential REIT, 14 multi-unit residential rental properties located in Canada and three multi-unit residential properties located in the United States (the "Initial Properties"), that had a total IFRS net book value of $680.5 million at March 31, 2012 and Morguard Residential REIT has assumed mortgages and obligations totaling $358.3 million that are secured by the Initial Properties.  Morguard has been appointed property and asset manager for Morguard Residential REIT.

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

FINANCIAL HIGHLIGHTS

Three months ended March 31,
(In thousands of dollars except for per share amounts)									2012				2011
Revenue from real estate properties									$76,302				$72,791
Management and advisory fees									16,499				16,475
Interest and other									3,956				3,078
Sales of product and land									1,324				1,666
Total revenues									98,081				94,010
Revenue from real estate properties									76,302				72,791
Property operating costs and realty tax expense									34,842				33,207
Net operating income									$41,460				$39,584
Funds from operations									$42,671				$33,073
Net income attributable to common shareholders									$51,662				$57,233
Income per share:
Basic and diluted  - net income									$4.00				$4.41

NET INCOME

Net income attributable to shareholders was $51.7 million ($4.00 per share) compared to $57.2 million ($4.41 per share) in 2011. The decrease in net income of $5.6 million was primarily due to a decrease in fair value gains on real estate properties of $31.2 million, an increase in property management and corporate expense of $1.9 million and an increase in interest expense of $0.6 million; these items were partially offset by a gain on sale of marketable securities of $13.6 million, an increase in the equity income from Morguard REIT of $8.9 million, an increase in net operating income of $1.9 million, an increase in interest and other income of $0.9 million and a decrease in income taxes of $3.4 million.

NET OPERATING INCOME

Three months ended March 31, (In thousands of dollars)									2012				2011
Net operating income - Canadian properties
Multi-unit residential - Canada									$12,994				$12,349
Retail - Canada									8,057				7,117
Office and industrial									9,858				10,769
									30,909				30,235
Net operating income - U.S. properties in U.S. dollars
Multi-unit residential - U.S.									US 4,546				US 4,409
Retail - U.S.									US 5,994				US 5,077
									US 10,540				US 9,486
Exchange amount to Canadian dollars									11				(137)
Net operating income - U.S. properties in Canadian dollars									10,551				9,349
Net operating income									$41,460				$39,584

Net operating income ("NOI") for the three months ended March 31, 2012, increased by $1.9 million to $41.5 million compared to $39.6 million in 2011, representing an increase of 4.7%.  The increase was predominantly the result of the following:

• Higher NOI in Canadian multi-unit residential properties primarily as a result of higher rental rates and lower vacancy;
• Higher NOI in Canadian retail properties predominantly due to an increase in occupancy;
• Lower NOI in office and industrial primarily as a result of a decrease in occupancy at two office properties due to tenants not renewing their leases;
• Higher NOI in U.S. multi residential properties primarily as a result of the acquisition of Village Crossing on December 29, 2011, partially offset by an increase in vacancy;
• Higher NOI in U.S. retail properties primarily as a result of the acquisition of Boynton Town Center, on February 28, 2011, which increased NOI by US$0.7 million and increase in occupancy at an unenclosed retail centre; and
• The change in the foreign exchange rate increased reported NOI by $0.1 million.

FUNDS FROM OPERATIONS ("FFO")

FFO was calculated as follows:

Three months ended March 31 (In thousands of dollars except for per share amounts)									2012				2011
Net income attributable to common shareholders									$51,662				$57,233
Items not affecting cash:
Fair value gains on real estate properties									(4,634)				(35,864)
Future income taxes									6,162				13,098
Depreciation on owner occupied property									26				26
Equity income from Morguard REIT									(19,348)				(10,438)
Morguard REIT's equity accounted FFO									8,788				8,935
Loss on sale of property									15				83
Funds from operations									$42,671				$33,073
Funds from operations
Per share amounts - basic and diluted									$3.30				$2.55

For the three months ended March 31, 2012, the Company recorded FFO of $42.7 million ($3.30 per share) compared to $33.1 million ($2.55 per share) in 2011, representing an increase of $9.6 million or 29%.  FFO increased primarily due to a gain on sale of marketable securities of $13.6 million, an increase in NOI of $1.9 million and an increase in interest and other income of $0.9 million; partially offset by an increase in current income taxes of $3.6 million, an increase in property management expenses of $1.9 million, an increase in interest expense of $0.6 million and an increase in other expense of $0.3 million.

Excluding the gain on sale of marketable securities of $11.7 million (net of tax impact), FFO for the three months ended March 31, 2012 would have been $31 million ($42.7 million less $11.7 million) or $2.39 per share, which represents a decrease in FFO of $2.1 million or 6.4% compared to the same period in 2011.

Readers are cautioned that although the terms "Net Operating Income", and "Funds From Operations" 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 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 interim unaudited financial statements for the three months ended March 31, 2012, 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 100 retail, multi-unit residential, office and industrial properties comprising 10,509 multi-unit residential suites and approximately 7.1 million square feet of commercial leasable space. Morguard Corporation also owns a 44.8% interest in Morguard Real Estate Investment Trust and a 67.6% effective interest in Morguard North American Residential Real Estate Investment Trust. Morguard provides advisory and management services to institutional and other investors through Morguard Investments Limited and Morguard Residential. For more information, visit the Company's website at www.morguard.com.