Morguard Corporation Announces Second Quarter Results and Regular Dividend
Aug 3, 2007
TORONTO, Aug. 3 /CNW/ - Morguard Corporation (TSX: MRC) announced
financial results for the three months ended June 30, 2007.SECOND QUARTER HIGHLIGHTS
- US$157 million of new mortgages with an average interest rate of 5.5%
were funded;
- The Company's acquisition bridge loan was paid off using proceeds
from the mortgages described above and with available cash resources;
- Completed a 73,653 square foot development at the Company's retail
property in West Palm Beach, FL;
- Further financial highlights are detailed in the table below;
-------------------------------------------------------------------------
(In thousands of Canadian Three months Six months
dollars, except per share ended June 30 ended June 30
amounts) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net operating income $34,478 $47,358 $68,154 $93,812
Interest expense (20,342) (24,452) (38,967) (48,806)
Property management and
administration (12,593) (10,818) (25,877) (20,701)
Equity income from Morguard
REIT - continuing operations 2,466 - 5,140 -
Fees and other revenue 13,626 9,549 27,180 17,816
Sale of products and land,
net of cost 465 4,830 924 5,838
-------------------------------------------------------------------------
Income before the under
noted 18,100 26,467 36,554 47,959
Amortization (19,500) (14,886) (39,679) (29,851)
Other income (expense) (2,135) 5,636 (3,443) 8,052
-------------------------------------------------------------------------
Operating income (loss) ($3,535) 17,217 (6,568) $26,160
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings 5,437 15,164 3,287 18,647
- per basic share 0.39 1.09 0.24 1.33
- per diluted share 0.38 0.73 0.23 0.98
Continuing funds from
operations 16,975 23,218 33,720 43,351
- per basic share $1.22 $1.66 $2.42 $3.10
- per diluted share $1.20 $1.64 $2.38 $3.06
Continuing funds from
operations - Morguard's Share 16,479 15,810 32,301 29,337
- per basic share $1.18 $1.13 $2.32 $2.10
- per diluted share $1.16 $1.11 $2.28 $2.07
-------------------------------------------------------------------------REVIEW OF FINANCIAL RESULTS
The significant changes to MRC's consolidated statement of income for the
three months ended June 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 six months ended June 30, 2006 and the
earnings of Morguard REIT are recorded in accordance with the equity method of
accounting for the three and six months ended June 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 six months ended June 30, 2007. A significant
decrease in the Company's net earnings has resulted from an additional
$10.7 million of amortization recorded for the three months ended June 30,
2007 as a result of the Sizeler acquisition. The following non-recurring items
also impacted net income negatively;- A $0.6 million charge against earnings related to the early repayment
of US$5 million of mortgages and a US$154 million payment of the
acquisition loan used to purchase Sizeler, and
- Transaction costs of $2.8 million related to new mortgages that were
funded during the second quarter of 2007. Effective January 1, 2007
the Company has elected to expense third-party costs associated with
the placement of new debt.The table below illustrates the impact to the Company's consolidated
statements of earnings for the periods ended June 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
June 30, 2007 June 30, 2006
-------------------------------------------------------------------------
(in thousands Remaining Remaining Morguard
of dollars) Morguard Sizeler Total Morguard REIT Total
-------------------------------------------------------------------------
Income from
properties $46,988 $16,352 $63,340 $42,648 $42,653 $85,301
-------------------------------------------------------------------------
Property operating (22,185) (6,677) (28,862) (20,897) (17,046) (37,943)
-------------------------------------------------------------------------
Net operating
income 24,803 9,675 34,478 21,751 25,607 47,358
-------------------------------------------------------------------------
Fee and other
revenue 13,626 - 13,626 9,549 - 9,549
-------------------------------------------------------------------------
Sale of products 2,091 - 2,091 12,669 - 12,669
-------------------------------------------------------------------------
Property management
and admin (11,723) (870) (12,593) (9,344) (1,474) (10,818)
-------------------------------------------------------------------------
Cost of sales (1,626) - (1,626) (7,839) - (7,839)
-------------------------------------------------------------------------
Earnings before
the under noted 27,171 8,805 35,976 26,786 24,133 50,919
-------------------------------------------------------------------------
Interest (13,798) (6,544) (20,342) (11,749) (12,703) (24,452)
-------------------------------------------------------------------------
Equity income from
Morguard REIT 2,466 - 2,466 - - -
-------------------------------------------------------------------------
Earnings before
amortization
and others 15,839 2,261 18,100 15,037 11,430 26,467
-------------------------------------------------------------------------
Amortization (8,777) (10,723) (19,500) (8,434) (6,452) (14,886)
-------------------------------------------------------------------------
Other income
(expense) (2,167) (27) (2,194) 1,656 (1,102) 554
-------------------------------------------------------------------------
Net dilution gain 59 - 59 5,082 - 5,082
-------------------------------------------------------------------------
Earning (loss) -
before income taxes,
non-controlling
interest and
discontinued
operations $4,954 $(8,489) $(3,535) $13,341 $3,876 $17,217
-------------------------------------------------------------------------Net earnings for the three months ended June 30, 2007 were $5.4 million
compared to net earnings of $15.2 million during the same period in 2006. The
Company's net results in 2007 have been significantly 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
$20.1 million was allocated to the apartment community segment. Given the
short-term nature of the leases underlying these assets, the Company the book
value of this asset will be completely amortized during 2007.
Net earnings for the quarter ended June 30, 2006 is substantially higher
primarily due to income earned of $4.4 million on the sale of land by RPCL and
a dilution gain of $5.1 million which resulted primarily from holders of
Morguard REIT's 8.5% convertible debentures converting into units and Morguard
REIT repurchasing its 8.5% convertible debentures under a normal course
issuers bid.NET OPERATING INCOME
-------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
(000's) 2007 2006 2007 2006
-------------------------------------------------------------------------
Property revenues $63,340 $85,301 $128,103 $171,941
Property operating expenses 28,862 37,943 59,949 78,129
-------------------------------------------------------------------------
Net operating income $34,478 $47,358 $68,154 $93,812
-------------------------------------------------------------------------
-------------------------------------------------------------------------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.
Net operating income ("NOI") for the three months ended June 30, 2007
decreased to $34.5 million, compared to $47.4 million for the same period in
2006. The decrease results primarily from the change in method of accounting
for Morguard REIT reducing reported NOI by $25.6 million, offset by increased
NOI from Sizeler of $9.7 million. Net operating income contributed by
"Remaining Morguard" increased 14% to $24.8 million in the second quarter of
2007 compared to $21.8 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 $1.5 million to NOI for the three
months ended June 30, 2007 (2006 - nil). The Company's properties were 95.3%
occupied as at June 30, 2007 (2006 - 94.1%).
FUNDS FROM OPERATIONS - MORGUARD's SHARE
Funds from continuing operations ("FFO") for the three months ended
June 30, 2007 are detailed in the table below. The consolidated FFO includes
funds available to non-controlling interests. To determine Morguard'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 Six months
ended June 30 ended June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings from continuing
operations (2,853) 14,492 (5,543) $17,667
Add (deduct) non-cash items:
Non controlling interest (3,577) 3,263 (6,964) 5,994
Amortization 19,500 14,886 39,679 29,851
Future income taxes 138 (4,341) (735) (4,559)
Equity income from Morguard
REIT (2,466) - (5,140) -
Morguard REIT's equity
accounted FFO 6,292 - 12,506 -
Net gain on sale of
investment - - - (79)
Net gain on conversion,
redemption and debentures
and dilution impact from
Subsidiaries (59) (5,082) (83) (5,523)
-------------------------------------------------------------------------
FFO - Consolidated $16,975 23,218 33,720 $43,351
LESS: non-controlling
interest - REIT - 5,473 - 10,585
non-controlling
interest - RPCL 496 1,935 1,419 3,429
-------------------------------------------------------------------------
FFO - Morguard's Share $16,479 15,810 32,301 $29,337
-------------------------------------------------------------------------
-------------------------------------------------------------------------The Company uses Funds from Operations ("FFO") and Funds from Operations
- 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 June 30, 2007 were
$16.5 million ($1.18 per common share) compared to $15.8 million ($1.13 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.
SECOND QUARTER FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The Company's unaudited financial statements for the three months ended
June 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.
THIRD QUARTERLY DIVIDEND
The board of directors of Morguard Corporation announced today the third
quarterly dividend of 2007 in the amount of $0.14 per common share will be
paid on September 28, 2007 to shareholders of record at the close of business
on September 14, 2007.
%SEDAR: 00004260E
For further information:
For further information: Morguard Corporation, K. (Rai) Sahi, Chief Executive Officer, (905) 281-5888; Paul Miatello, Chief Financial Officer, (905) 281-5943