Morguard Corporation Announces Accounting Impact on Book Value of Investment Properties on Adoption of International Financial Reporting Standards

TSX: MRC

MISSISSAUGA, ON, Jan. 24 /CNW/ - Morguard Corporation ("MRC") (TSX: MRC) today announced the valuation of its investment properties for its opening balance sheet as at January 1, 2010 in accordance with its transition to International Financial Reporting Standards ("IFRS").

IFRS becomes effective as at January 1, 2010 and MRC's financial statements for the quarter ending March 31, 2011 will be reported under IFRS with comparable results commencing January 1, 2010.

MRC has adopted the fair value model under IFRS with the initial increase in fair value on the transition date recorded in shareholders' equity as at January 1, 2010 and subsequent changes being recorded in the income statement on a quarterly basis in future periods.

The carrying value of MRC's income properties and properties under development will increase by approximately $500 million to $2.1 billion.  This $2.1 billion value compares to the historical cost amount under Canadian GAAP of $1.6 billion as at January 1, 2010.  The IFRS and Canadian GAAP carrying values both include straight-line rent, direct leasing costs, lease incentives and intangible liabilities (below market leases). 

The increase in the carrying value of MRC's investment properties by approximately $500 million under IFRS results in an associated future income tax liability increase as at January 1, 2010 of approximately $60 million.  The future income tax liability under IFRS has been determined by tax effecting the increase in fair value at the capital gains tax rate based on the presumption that the method of realization will be through the sale of the property.

MRC accounts for its investment in Morguard Real Estate Investment Trust ("MRT") using the equity method.  As a result of MRT adopting the fair value method of accounting for its investment properties, MRC's investment in MRT will increase by approximately $182 million, which represents 45.5% of MRT's fair value increase in investment properties.  MRC will record a corresponding future income tax liability of approximately $30 million for this increase in its investment in MRT.

Valuation Process

For its opening balance sheet at January 1, 2010, MRC had its Canadian portfolio internally appraised by its appraisal division and the U.S. portfolio was predominantly externally appraised by an independent national U.S. real estate appraisal firm.  MRC's appraisal division is staffed with five accredited members of the Appraisal Institute of Canada who collectively in 2010 valued over $8.5 billion of real estate properties in Canada for institutional and corporate clients.  Overall, approximately 30% of MRC's portfolio was externally appraised.

All income-producing properties are appraised using a number of approaches that typically include a discounted cash flow analysis, a direct capitalization approach and a direct comparison approach.  Using the direct capitalization income approach as a reporting parameter, individual properties were valued using capitalization rates in the range of 5.8% to 9.5% applied to a stabilized net operating income ("NOI"), resulting in an overall weighted average capitalization rate of 7.1%.

The table below provides further details of the average capitalization rates by product type as at January 1, 2010:

As at January 1, 2010	Weighted Average Cap. Rate	Range
Multi-unit residential - Canada	6.1%	5.8%-6.5%
Retail - Canada	7.6%	6.8%-9.5%
Office and Industrial	7.2%	6.5%-8.5%
Multi-unit residential - U.S.	8.2%	7.0%-8.8%
Retail - U.S.	8.2%	7.5%-9.3%
Total Weighted Average	7.1%	5.8%-9.5%

Other Impacts of Adoption of IFRS - Investment Property

As a result of the conversion to IFRS, MRC's debt to aggregate asset ratio is expected to decrease to approximately 45.6% as at January 1, 2100 based on IFRS carrying values compared to MRC's stated leverage of 53.8% based on Canadian GAAP on January 1, 2010.

About Morguard Corporation

Morguard Corporation is a real estate company, which owns a diversified portfolio of 101 retail, multi-unit residential, office and industrial properties comprising 10,299 multi-unit residential suites and approximately 6.9 million square feet of commercial leasable space. 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.