Morguard Corporation Announces 2006 Year End Results
Mar 26, 2007
TSX: MRC
TORONTO, March 26 /CNW/ -Financial Highlights
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Year Ended
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(in thousands of dollars except December December
per share amounts) 31, 2006 31, 2005
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Revenue $387,124 $379,247
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Net operating income 174,876 185,461
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EBITDA 182,809 181,008
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Net Earnings from continuing operations 48,251 17,145
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EPS - continuing operations $2.74 $0.97
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Net earnings 58,092 21,224
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EPS $3.44 $1.25
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Total Assets $2,000,186 $2,511,971
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Morguard's share of FFO
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Funds from operations - recurring $55,701 $47,890
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Funds from operations - non-recurring and
discontinued 16,695 1,871
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Funds from operations 72,396 49,761
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FFO per share diluted - recurring $3.93 $3.34
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FFO per share diluted $5.11 $3.47
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Note: Net operating income, EBITDA and funds from operations are not
recognized performance measures under Canadian GAAP. EBITDA is
defined as earnings before interest, taxes, depreciation,
amortization and earnings from equity accounted investments.
Management believes that in addition to net earnings, this measure
is useful supplemental information to provide investors with an
indication of income available prior to debt service, capital
expenditures and income taxes. Investors should be cautioned,
however, that these measures should not be construed as an
alternative to net earnings determined in accordance with GAAP as
an indicator of the Company.
Corporate and Operating Highlights
Morguard Corporation (the "Company") is focused on ownership, management
and development of commercial and multi-residential properties through three
core investments:
- Morguard Real Estate Investment Trust ("Morguard REIT")
- Morguard Residential Inc. ("Morguard Residential")
- Revenue Properties Company Limited ("RPCL")
Through the Company's wholly-owned subsidiaries, Morguard Investments
Limited ("Morguard Investments") and Morguard Residential, the Company
provides real estate management services to Canadian institutional investors
and private individuals. Services include acquisitions, development,
dispositions, leasing, performance measurements, and asset and property
management.
During 2006, consistent with the Company's business strategy, there were a
number of key developments:
- RPCL acquired Sizeler Property Investors, Inc. ("Sizeler") in a
transaction valued at CDN$478 which contains a portfolio of 30
properties with approximately 2.2 million square feet of gross
leaseable retail area and 3,257 apartment suites in three U.S. states:
Louisiana, Alabama and Florida.
- Morguard REIT acquired an undivided 50% interest in three Class A
office properties in downtown Ottawa for $105 million. The properties
are currently 99% leased with 79% leased to government tenants under
long-term leases.
- The Company completed construction of a 329,000 square foot Class A
office property at 131 Queen Street, Ottawa. This property is 93%
leased to a government of Canada tenant on a 20 year lease.
- Morguard REIT disposed of 11 industrial properties with gross
leaseable area of 876,000 square feet for gross proceeds of
$72 million. The transaction is consistent with Morguard REIT's
strategy to dispose of real estate properties where value has been
maximized.
- As a result of the dilution in the Company's ownership of
Morguard REIT down to 41.9%, the Company began accounting for its
investment using the equity method of accounting during the fourth
quarter of 2006.
- During 2006, the Company received five major industry awards.
- 181 Queen Street, Ottawa, ON - National Office Building of the
Year (BOMA)
- The Bramalea City Centre, Brampton, ON - ICSC Maple Leaf Award
- St. Laurent Centre, Ottawa, ON - ICSC Maple Leaf Award
- Cottonwood Mall - Chilliwack, BC - ICSC Maple Leaf Award
- The Colonnade, Toronto, ON - Best Suite Renovation
- The value of the Company's portfolio of owned and managed properties
now approximates $7.8 billion.
- The Company's mortgages have a weighted average interest rate of 5.86%
as at December 31, 2006 (2005 - 6.06%).
- The Company continued its regular dividend program, paying $0.14 per
share on a quarterly basis, distributing $7.7 million.
Net Earnings from Continuing Operations
Net earnings from continuing operations increased to $48.3 in 2006
compared to $17.1 million in 2005. The increase is primarily due to:
- Higher net operating income from developed and acquired real estate
properties of approximately $14 million,
- Increased dilution gains recorded on the reduction of the Company's
ownership in Morguard REIT of approximately $10 million,
- A non-cash recovery of current income taxes of $12.8 million,
- Reduced charges related to early bond extinguishments of approximately
$9 million, offset by:
- Higher interest expense of approximately $5 million and
- Higher amortization expense of approximately $12 million.Interest charges in 2006 were higher than 2005 due to new debt incurred
on the acquisition and development of real estate properties. Amortization
charges were higher than 2005 mainly due to the acquisition of Sizeler.
Funds from Operations
The Company's consolidated FFO includes funds available to
non-controlling interests. To calculate Morguard's share of consolidated FFO,
the non-controlling interest of Morguard REIT and RPCL needs to be deducted
and any inter-company fees, eliminated on consolidation, added. The Company
believes that the analysis of FFO is more clearly presented when the
non-controlling interest attributable to Morguard REIT and RPCL is eliminated.
Morguard's share of consolidated FFO, detailed below, totals $72.4 million or
$5.11 per diluted share.
The Company's share of consolidated FFO for the year ended December 31,
2006 of $72.6 million includes $16.7 million of non-recurring items and
discontinued operations (2005 - $1.89 million). The non-recurring items
included in Morguard's share of consolidated FFO for the year ended
December 31, 2006 include the non-cash recovery of current income taxes
previously discussed ($12.8 million) and $3.9 million related to discontinued
operations in Morguard REIT.-------------------------------------------------------------------------
CONSOLIDATED FUNDS FROM CONTINUING OPERATIONS
(in thousands of dollars except for per share amounts)
MORGUARD'S SHARE
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December 31 2006 2005 Variance %
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Consolidated funds from
continuing operations $100,843 $68,775 $32,068 46.6%
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Less:
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Non controlling interest -
Morguard REIT 21,500 13,618 7,881 57.9%
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Non controlling interest -
Revenue Properties 6,947 5,396 1,551 28.7%
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Adjusted Consolidated funds from
continuing operations -
Morguard's Share 72,396 49,761 22,635 45.5%
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Per share amounts - basic $5.19 $3.53 $1.65 46.8%
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Per share amounts - diluted $5.11 $3.47 $1.64 47.2%
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Financial statements follow.
MORGUARD CORPORATION
CONSOLIDATED BALANCE SHEETS
As at December 31
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2006 2005
(in thousands of Canadian dollars)
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ASSETS
Real estate assets, net $1,626,060 $2,173,482
Investment in Morguard Real Estate Investment
Trust 218,133 -
Other assets 54,007 71,769
Amounts receivable 52,574 65,027
Goodwill 24,488 24,488
Cash and cash equivalents 24,924 21,004
Investments - 26,985
Assets held for sale - 129,216
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Total assets $2,000,186 $2,511,971
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LIABILITIES, NON-CONTROLLING INTEREST AND
SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable $846,207 $1,239,252
Convertible debentures payable - 142,952
Bank indebtedness 122,065 128,622
Loans and notes payable 296,618 22,313
Accounts payable and accrued liabilities 95,926 83,503
Future income tax liabilities 117,677 121,002
Construction financing on properties under
development - 33,027
Liabilities related to assets held for sale - 80,977
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Total liabilities 1,478,493 1,851,648
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Non-controlling interest 22,940 203,773
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Shareholders' equity 498,753 456,550
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Total liabilities, non-controlling interest and
shareholders' equity $2,000,186 $2,511,971
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MORGUARD CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31
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(in thousands of Canadian dollars, except
per share amounts) 2006 2005
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REVENUE
Income from real estate properties $319,640 $336,398
Fees and other revenue 46,311 34,410
Sales of products and land 21,173 8,439
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387,124 379,247
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EXPENSES
Property operating 144,764 150,937
Property management and administration 46,874 40,938
Cost of sales 14,719 6,364
Interest on mortgages and debentures 81,425 90,292
Interest on bank indebtedness and loans payable 3,835 4,116
Equity income from Morguard REIT- continuing
operations (2,042) -
Amortization 60,589 54,311
Amortization - deferred financing 5,371 3,501
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Earnings before other income (expense), income
taxes and non-controlling interest 31,589 28,788
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OTHER INCOME (EXPENSE)
Net gain on conversion, redemption and dilution
of convertible debentures and dilution impact
from change in ownership of subsidiaries 11,707 2,004
Dividend income and other 8,543 6,379
Net gain on sale of assets and investments 544 4,048
Cost of early extinguishment of mortgage bonds - (8,742)
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20,794 3,689
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Earnings before income taxes, non-controlling
interest and discontinued operations 52,383 32,477
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Provision for (recovery of) income taxes
Current (488) 10,131
Future (3,748) 682
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(4,236) 10,813
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Non-controlling interest (8,368) (4,519)
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Net earnings from continuing operations 48,251 17,145
Equity income from Morguard REIT - discontinued
operations, net of tax 9,693 -
Net earnings from discontinued operations,
net of tax 148 4,099
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Net earnings for the year $58,092 $21,244
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Earnings per share
Basic - continuing operations $3.46 $1.22
Diluted - continuing operations 2.74 0.97
Basic - discontinued operations 0.71 0.29
Diluted - discontinued operations 0.69 0.29
Basic - net earnings 4.16 1.51
Diluted - net earnings 3.44 1.25
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MORGUARD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31
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(in thousands of Canadian dollars, except for
per share amounts) 2006 2005
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Share capital
Balance, beginning of year $122,748 $121,754
Issuance of common shares 1,686 1,161
Repurchase of common shares (3,323) (167)
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Balance, end of year 121,111 122,748
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Retained earnings
Balance, beginning of year 333,802 320,805
Net earnings for the year 58,092 21,244
Dividends (7,794) (7,903)
Excess of purchase price of common shares over
average carrying value (8,669) (344)
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Balance, end of year 375,431 333,802
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Cumulative translation adjustment
Balance, beginning of year - -
Current adjustment 2,211 -
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Balance, end of year 2,211 -
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Shareholders' equity $498,753 $456,550
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MORGUARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
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(in thousands of Canadian dollars) 2006 2005
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OPERATING ACTIVITIES
Net Earnings from continuing operations $48,251 $17,145
Items not affecting cash:
Non-controlling interest 8,368 4,519
Amortization 59,488 54,311
Amortization - deferred financing 5,371 3,501
Equity income from Morguard REIT - continuing
operations (2,042) -
Net gain on sale of assets and investments (544) (4,048)
Net gain on conversion, redemption and
dilution of convertible debentures and
dilution impact from change in ownership
of subsidiaries (11,707) (2,004)
Accretion convertible debentures 744 1,238
Stepped rent - adjustment for straight line
method (3,180) (4,514)
Future income taxes (3,748) 682
Cost of early extinguishment of mortgage bonds - 8,742
Other 45 (167)
Distribution from Morguard REIT 5,574 -
Deferred leasing cost additions (5,979) (7,305)
Net change in operating assets and liabilities (7,643) 6309
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Cash provided by operating activities 92,998 78,409
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INVESTING ACTIVITIES
Investment in shares of Sizeler and others (361,079) (20,134)
Additions to real estate properties and capital
assets (49,231) (143,386)
Proceeds from sale of real estate assets and
investments 9,593 12,519
Additional investment in subsidiaries (4,506) -
Decrease to cash caused by equity accounting
Morguard REIT (562) -
Repayment of vendor take back mortgages - 4,400
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Cash used in investing activities (405,785) (146,601)
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FINANCING ACTIVITIES
Net proceeds from loans payable 285,456 -
Net proceeds (repayments) of bank indebtedness 53,728 5,899
Proceeds from mortgages 180,222 304,604
Repayment of mortgages and notes payable (106,952) (235,696)
Net proceeds (repayment) from construction
financing on properties under development (33,027) 10,819
Financing costs and swap settlements (12,876) (13,666)
Redemption of convertible debentures (5,119) (25,382)
Cost of early extinguishment of mortgage bonds
payable - (8,246)
Proceeds on issue of common shares 1,624 895
Proceeds on issue of subsidiary common shares 28 322
Shares purchased for cancellation (11,992) (511)
Dividends paid (7,733) (7,636)
Distribution to subsidiary
unitholders/shareholders (16,382) (21,663)
Buy back of subsidiary's common shares (12,505) (2,399)
(Increase) decrease in restricted cash (230) 491
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Cash provided by financing activities 314,242 7,831
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Net decrease in cash and cash equivalents
during the year 1,455 (60,361)
Cash provided by discontinued operations 1,626 70,023
Net effect of foreign currency translation on
cash balance 839 (223)
Cash and cash equivalents, beginning of year 21,004 11,565
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Cash and cash equivalents, end of year $24,924 $21,004
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For further information:
For further information: Mr. Donald Turple, Chief Financial Officer, 55 City Centre Drive, Ste 1000, Mississauga, Ontario, L5B 1M3, Phone: (905) 281-3800, dturple@morguard.com