Morguard Corporation Announces First Quarter Results
May 4, 2007
TORONTO, May 4 /CNW/ - Morguard Corporation (TSX: MRC) announced
financial results for the three months ended March 31 2007.HIGHLIGHTS
- US$150 million of new mortgages with an interest rate of 5.6% were
funded;
- US$90 million of the Company's bridge loan used to acquire Sizeler was
repaid;
- Commitments were executed for up to US$170 million of additional
mortgage financing with closings anticipated during May 2007;
- Further financial highlights are detailed in the table below;
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Three months ended March 31
(In thousands of Canadian dollars, -----------------------------
except per share amounts)
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2007 2006
Net operating income $33,676 $46,454
Interest expense (19,779) (24,354)
General and administrative (13,284) (9,883)
Equity income from Morguard REIT - continuing
operations 2,674 -
Fees and other revenue 13,554 8,267
Sale of products and land, net of cost 459 1,008
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Income before the undernoted 17,300 21,492
Amortization (20,179) (14,965)
Other income (expense) (154) 2,416
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Operating income (loss) ($3,033) $8,943
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Net earnings (loss) (2,150) 3,483
- per basic and diluted share (0.15) 0.25
Continuing funds from operations 16,745 20,212
- per basic share $1.21 $1.45
- per diluted share $1.18 $1.42
Continuing funds from operations - Morguard's
Share 15,822 13,607
- per basic share $1.14 $0.97
- per diluted share $1.12 $0.96
-------------------------------------------------------------------------REVIEW OF FINANCIAL RESULTS
The significant changes to MRC's consolidated statement of income for the
three months ended March 31, 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 financial results of
Morguard REIT for the three months ended March 31, 2006 and the earnings of
Morguard REIT are recorded in accordance with the equity method of accounting
for the three months ended March 31, 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 months ended March 31, 2007. A significant decrease in
the Company's net earnings has resulted from an additional $11.4 million of
amortization recorded for the three months ended March 31, 2007 as a result of
the Sizeler acquisition.
The table below illustrates the impact to the Company's consolidated
statements of earnings for the periods ended March 31, 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.Impact of significant reporting matters on statements on earnings
2007 2006
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Remaining Remaining Morguard
Morguard Sizeler Total Morguard REIT Total
Income from
properties 47,345 17,418 64,763 42,660 43,980 86,640
Property operating (24,332) (6,755) (31,087) (20,891) (19,295) (40,186)
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Net operating
income 23,013 10,663 33,676 21,769 24,685 46,454
Fee and other
revenue 13,554 - 13,554 8,267 - 8,267
Sale of products 1,816 - 1,816 4,500 - 4,500
Property management
and admin (11,095) (2,189) (13,284) (9,883) (9,883)
Cost of sales (1,357) - (1,357) (3,492) - (3,492)
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Earnings before the
under noted 25,931 8,474 34,405 21,161 24,685 45,846
Interest (12,516) (7,263) (19,779) (11,182) (13,172) (24,354)
Equity income from
Morguard REIT 2,674 - 2,674 - - -
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Earnings before
amortization
and others 16,089 1,211 17,300 9,979 11,513 21,492
Amortization (8,813) (11,366) (20,179) (8,323) (6,642) (14,965)
Other income
(expense) 584 (738) (154) 3,287 (871) 2,416
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Earnings (loss) -
before income taxes,
non-controlling
interest and
discontinued
operations 7,860 (10,893) (3,033) 4,943 4,000 8,943
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--------------------------- --------------------------The Company incurred a net loss during the three months ended March 31,
2007 of $2.2 million compared to net earnings of $3.5 million during the same
period in 2006. The Company's net results in 2006 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 $18.3 million was allocated to the apartment community
segment. Given the short-term nature of the leases underlying these assets,
the Company's book value of these assets will be completely amortized during
2007.NET OPERATING INCOME
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Three months ended March 31
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(000's) 2007 2006
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Property revenues $64,763 $86,640
Property operating expenses 31,087 40,186
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Net operating income $33,676 $46,454
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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 March 31, 2007
decreased to $33.7 million, compared to $46.5 million for the same period in
2006. The decrease results primarily from the change in method of accounting
for Morguard REIT which reduced reported NOI by $24.7 million, offset by
increased NOI from Sizeler of $10.7 million. Net operating income contributed
by "Remaining Morguard" increased 5.7% to $23.0 million in the first quarter
of 2007 compared to $21.8 million in 2006. The increase primarily results from
NOI earned by 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 March 31, 2007 (2006 - nil). The Company's properties were 95.2%
occupied as at March 31, 2007 (2006 - 95.6%).
FUNDS FROM OPERATIONS - MORGUARD'S SHARE
Funds from continuing operations ("FFO") for the three months ended March
31, 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 ended March 31
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2007 2006
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Net income (loss) ($2,690) $3,175
Add (deduct) non-cash items:
Non-controlling interest (3,387) 2,731
Amortization 20,179 14,965
Future income taxes (873) (218)
Equity income from Morguard REIT - continuing
operations (2,674) -
Morguard REIT's equity accounted FFO 6,214 -
Net gain on conversion, redemption and dilution of
convertible debentures and dilution impact from
change in ownership of Subsidiaries (24) (441)
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FFO - Consolidated $16,745 $20,212
LESS: non-controlling interest - Morguard REIT - 5,112
non-controlling interest - RPCL 923 1,493
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FFO - Morguard's Share $15,822 $13,607
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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 March 31, 2007 were
$15.8 million ($1.12 per common share) compared to $13.6 million ($0.96 per
common share) for the same period in 2006. The increase reflects contributions
from the Company's properties, as well as increased earnings reported by
Morguard Investments Limited, a wholly owned subsidiary, resulting primarily
from the growth of its portfolio of managed properties.
FIRST QUARTER FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The Company's unaudited financial statements for the three months ended
March 31, 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.
For further information:
For further information: Morguard Corporation: (Rai) Sahi, Chief Executive Officer, (905) 281-5888; Paul Miatello, Chief Financial Officer, (905) 281-5943