Morguard Corporation Announces Third Quarter Results and Regular Dividend
Nov 1, 2007
MISSISSAUGA, ON, Nov. 1 /CNW/ - Morguard Corporation (TSX: MRC) announced
financial results for the three months ended September 30, 2007.THIRD QUARTER HIGHLIGHTS
- Morguard's share of continuing funds from operations was
$22.9 million or $1.65 per common share (2006-$15.1 million,
$1.08 per common share).
- An additional 520,200 common shares of RPCL were purchased.
- CDN$50.3 million of new mortgages were funded with an average
interest rate of 5.87%.
- The Company's acquisition bridge loan was extinguished through a
final payment of US$6.0 million.
- The fourth quarter dividend was declared in the amount of $0.14 per
common share.
- Further financial highlights are detailed in the table below:
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30th September 30th
-------------------------------------------------------------------------
(In thousands of 2007 2006 2007 2006
Canadian dollars,
except per share amounts)
-------------------------------------------------------------------------
Net operating income $35,783 $49,807 $103,937 $143,619
Interest expense (17,856) (24,473) (56,823) (73,279)
Property management and
administration (12,723) (11,543) (38,600) (32,244)
Equity income from
Morguard REIT -
continuing operations 2,187 - 7,327 -
Fees and other revenue 13,931 9,484 41,111 27,300
Sale of products and land,
net of cost 441 488 1,365 6,326
-------------------------------------------------------------------------
Income before the undernoted 21,763 23,763 58,317 71,722
Amortization (19,317) (14,442) (58,996) (44,293)
Other income (expense) 1,802 2,554 (1,641) 10,606
-------------------------------------------------------------------------
Operating income (loss) 4,248 11,875 (2,320) $38,035
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings 4,654 4,937 7,941 23,585
- per basic share 0.33 0.36 0.57 1.69
- per diluted share 0.33 0.34 0.56 1.31
Continuing funds from
operations 24,814 22,337 58,528 65,689
- per basic share $1.78 $1.61 $4.21 $4.71
- per diluted share $1.76 $1.58 $4.15 $4.64
Continuing funds from
operations - Morguard's
Share 22,946 15,077 55,454 44,016
- per basic share $1.65 $1.08 $3.98 $3.17
- per diluted share $1.63 $1.07 $3.93 $3.12
-------------------------------------------------------------------------
REVIEW OF FINANCIAL RESULTS
The significant changes to the Company's consolidated statement of income
for the three months ended September 30, 2007 relate primarily to a change in
the method of accounting for Morguard Real Estate Investment Trust ("Morguard
REIT") which was effective from October 4, 2006 and the acquisition of Sizeler
Property Investors, Inc. ("Sizeler") that occurred on November 10, 2006.
As a result of the dilution in the Company's ownership of Morguard REIT,
the Company began accounting for its investment using the equity method of
accounting with effect from October 4, 2006. Consequently, the statements of
earnings and cash flows of the Company consolidate the financials results of
Morguard REIT for the three and nine months ended September 30, 2006 and the
earnings of Morguard REIT are recorded in accordance with the equity method of
accounting for the three and nine months ended September 30, 2007.
Revenues and expenses generated by the assets and liabilities acquired in
the Sizeler transaction have been included in the Company's consolidated
results for the three and nine months ended September 30, 2007. A decrease in
the Company's net earnings has resulted from an additional $10.4 million of
amortization recorded during the quarter as a result of the Sizeler
acquisition, $5.0 million of additional interest expense, offset by
$9.8 million of additional net operating income ("NOI").
The table below illustrates the impact to the Company's consolidated
statements of earnings for the periods ended September 30, 2007 and 2006
caused by the events described above by isolating the revenues, expenses, and
equity income of Morguard REIT and Sizeler. The column referred to as
"Remaining Morguard" represents the Company's revenues and expenses that were
unaffected by the changes described above.
-------------------------------------------------------------------------
Three months ended Three months ended
September 30, September 30,
2007 2006
------------------------------------------------------------
(in
thousands Remaining Remaining Morguard
of dollars) Morguard Sizeler Total Morguard REIT Total
-------------------------------------------------------------------------
Income from
properties $48,550 $15,923 $64,473 $44,878 $43,568 $88,446
-------------------------------------------------------------------------
Property
operating (22,553) (6,137) (28,690) (21,170) (17,469) (38,639)
-------------------------------------------------------------------------
Net operating
income 25,997 9,786 35,783 23,708 26,099 49,807
-------------------------------------------------------------------------
Fee and other
revenue 13,931 - 13,931 9,484 - 9,484
-------------------------------------------------------------------------
Sale of
products 1,805 - 1,805 2,007 - 2,007
-------------------------------------------------------------------------
Property
management
and admin (11,916) (807) (12,723) (10,091) (1,452) (11,543)
-------------------------------------------------------------------------
Cost of sales (1,364) - (1,364) (1,519) - (1,519)
-------------------------------------------------------------------------
Earnings
before the
undernoted 28,453 8,979 37,432 23,589 24,647 48,236
-------------------------------------------------------------------------
Interest (12,835) (5,021) (17,856) (12,307) (12,166) (24,473)
-------------------------------------------------------------------------
Equity income
from Morguard
REIT 2,187 - 2,187 - - -
-------------------------------------------------------------------------
Earnings before
amortization
and others 17,805 3,958 21,763 11,282 12,481 23,763
-------------------------------------------------------------------------
Amortization (8,927) (10,390) (19,317) (7,893) (6,549) (14,442)
-------------------------------------------------------------------------
Other income
(expense) 1,755 22 1,777 3,420 (972) 2,448
-------------------------------------------------------------------------
Net dilution
gain 25 - 25 106 - 106
-------------------------------------------------------------------------
Earning (loss) -
before income
taxes,
non-controlling
interest and
discontinued
operations $10,658 $(6,410) $4,248 $6,915 $4,960 $11,875
-------------------------------------------------------------------------
Net earnings for the three months ended September 30, 2007 were
$4.7 million compared to net earnings of $4.9 million during the same period
in 2006. The Company's net results in 2007 have been impacted by amortization
charges related to the acquisition of Sizeler. The increased amortization is
the result of $101.3 million of in-place lease costs that are being amortized
over the remaining term of the underlying leases. Of the $101.3 million of
in-place lease costs recorded upon the acquisition of Sizeler approximately
$18.3 million was allocated to the apartment community segment. Given the
short-term nature of the leases underlying these assets, the book value of
this asset will be completely amortized during 2007.
NET OPERATING INCOME
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
---------------------------------------------
(in thousands
of dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Property revenues $64,473 $88,446 $192,576 $260,387
Property operating expenses 28,690 38,639 88,639 116,768
-------------------------------------------------------------------------
Net operating income $35,783 $49,807 $103,937 $143,619
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net operating income is used by industry analysts, investors and
management to measure operating performance at the Company's properties.
Net operating income represents total property revenues less property
operating expenses and maintenance expenses. Accordingly, net operating
income excludes certain expenses included in the determination of net
income such as property management and other indirect operating expenses,
interest expense and amortization. Net operating income is not a
recognized measure under Canadian generally accepted accounting
principles and accordingly the term does not necessarily have a
standardized meaning and may not be comparable to similarly titled
measures presented by other publicly traded entities.
NOI for the three months ended September 30, 2007 decreased to
$35.8 million, compared to $49.8 million for the same period in 2006. The
decrease results primarily from a change in the method of accounting for
Morguard REIT reducing reported NOI by $26.1 million, offset by increased NOI
from Sizeler of $9.8 million. Net operating income contributed by "Remaining
Morguard" increased 9.7% to $26 million in the third quarter of 2007 compared
to $23.7 million in 2006. The increase primarily results from NOI earned at
the Company's newly developed property located at 131 Queen Street in Ottawa,
Ontario contributing $1.6 million to NOI for the three months ended
September 30, 2007 (2006 - 0.5). The Company's properties were 95.5% occupied
as at September 30, 2007 (2006 - 94.7%).
FUNDS FROM OPERATIONS - MORGUARD'S SHARE
Funds from continuing operations ("FFO") for the three months ended
September 30, 2007 are detailed in the table below. The consolidated FFO
includes funds available to non-controlling interests. To determine the
Company's share of consolidated FFO, the non controlling interest of Morguard
REIT (2006 only) and RPCL needs to be deducted and any inter-company fees
eliminated on consolidation added.
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
---------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings from continuing
operations $3,953 $4,604 $(1,591) $22,272
Add (deduct) non-cash items:
Non controlling interest (1,958) 3,212 (8,922) 9,206
Amortization 19,317 14,442 58,996 44,293
Future income taxes (1,104) 185 (1,839) (4,374)
Equity income from Morguard
REIT (2,187) - (7,327) -
Morguard REIT's equity
accounted FFO 6,864 - 19,365 -
Net gain on sale of
investment (46) - (46) (79)
Net gain on conversion,
redemption and debentures
and dilution impact from
Subsidiaries (25) (106) (108) (5,629)
-------------------------------------------------------------------------
FFO - Consolidated $24,814 $22,337 $58,528 $65,689
LESS: non-controlling
interest - REIT - 6,029 - 17,044
non-controlling
interest - RPCL 1,868 1,231 3,074 4,629
-------------------------------------------------------------------------
FFO - Morguard's Share $22,946 $15,077 $55,454 $44,016
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company uses Funds from Operations ("FFO") and FFO - Morguard's Share
in addition to net income to report operating results. FFO is an industry
standard for evaluating operating performance defined as net income plus
amortization and future income taxes, excludes gains or losses from the
sale of depreciable property and is not adjusted for gains realized on
the disposition of portfolio investments. FFO is not indicative of funds
available to meet the Company's cash requirements. The Company computes
FFO in accordance with the recently amended definitions of the Real
Property Association of Canada, formerly known as the Canadian Institute
of Public and Private Real Estate Companies. However, FFO is not a
recognized measure under Canadian generally accepted accounting
principles and accordingly the term does not necessarily have a
standardized meaning and may not be comparable to similarly titled
measures presented by other publicly traded entities.FFO - Morguard's Share for the three months ended September 30, 2007 were
$22.9 million ($1.65 per common share) compared to $15.1 million ($1.08 per
common share) for the same period in 2006. The increase reflects contributions
from the Company's properties as well increased earnings reported by Morguard
Investments Limited, a wholly owned subsidiary, resulting primarily from the
growth of its portfolio of managed properties.
THIRD QUARTER FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The Company's unaudited financial statements for the three months ended
September 30, 2007, along with the Management's Discussion and Analysis are
available on the Company's website at www.morguard.com and have been filed
with SEDAR at www.sedar.com.
QUARTERLY DIVIDEND
The board of directors of Morguard Corporation announced today the
quarterly dividend of 2007 in the amount of $0.14 per common share will be
paid on December 31, 2007 to shareholders of record at the close of business
on December 14, 2007.
%SEDAR: 00004260E
For further information:
For further information: Morguard Corporation: K. (Rai) Sahi, Chief Executive Officer, (905) 281-3800; Paul Miatello, Chief Financial Officer, (905) 281-5943