Morguard Corporation Announces 2013 Second Quarter Results and Regular Eligible Dividend

TSX: MRC

MISSISSAUGA, ON, Aug. 14, 2013 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) announced its financial results for the three months ended June 30, 2013.

TRANSACTION HIGHLIGHTS

• Acquired 12 multi-unit residential properties, comprised of 3,752 suites located in the U.S. for US$450 million financed by the assumption of in-place mortgages of US$218.7 million and newly arranged mortgages of US$57.7 million;
• Acquired five Toronto area hotels for a total purchase price of $70.6 million financed by a mortgage of $46 million; and
• Refinanced one multi-unit residential property in the amount of $35.8 million, at an interest rate of  2.96% for a term of 10 years.

OPERATING HIGHLIGHTS

• Total revenues increased by 28.8% to $129.8 million compared to $100.8 million in 2012;
• The Company recorded a land lease arbitration expense of $20.2 million (see Land Lease Arbitration section);
• Comparative net operating income increased by 2.9% to $45.3 million compared to $44.0 million in 2012;
• Normalized funds from operations, which excludes the land lease arbitration expense and other non-recurring items, increased by 44.2% to $34.2 million, or $2.69 per share, compared to $23.7 million, or $1.84 per share in 2012;
• Weighted average interest rate of mortgages payable is now 4.51%; and
• Total assets as at June 30, 2013 are $5.1 billion (16% increase over December 31, 2012).

All amounts in thousands of Canadian dollars, except for per share amounts, unless otherwise noted.

FINANCIAL HIGHLIGHTS
	Three months ended June 30		Six months ended June 30
(In thousands of dollars)	2013	2012	2013	2012
Revenue from income producing properties	$102,324	$77,459	$194,012	$154,224
Management and advisory fees	15,929	18,089	32,156	34,588
Interest and other	4,737	4,039	6,695	7,940
Sales of product and land	6,820	1,210	8,044	2,534
Total revenues	129,810	100,797	240,907	199,286
Revenue from income producing properties	$102,324	$77,459	$194,012	$154,224
Property operating costs and realty tax expense	(46,721)	(33,230)	(90,619)	(68,281)
Land lease arbitration expense	(20,158)	(355)	(20,513)	(710)
Net operating income	$35,445	$43,874	$82,880	$85,233
Funds from operations (FFO)	$20,027	$23,718	$66,929	$66,242
FFO per share - basic and diluted	$1.58	$1.84	$5.25	$5.13
Net income attributable to common shareholders	$22,950	$91,274	$122,599	$142,936
Net income per share - basic and diluted	$1.80	$7.08	$9.62	$11.06

LAND LEASE ARBITRATION
The Company leases the land underlying a mixed-use property, located in Toronto, Ontario (the "Land Lease Property").  In accordance with the terms of the lease, the land rent is based on 6% of the fair market value of the land and the rent was scheduled for reset on July 1, 2010.  Since the lessor and the Company were not able to reach an agreement on the fair market value of the land, the matter was appointed to an Arbitration Tribunal (the "Arbitrators") and on June 21, 2013, a majority of the Arbitrators awarded their decision that the land should be appraised as if vacant and unencumbered by a lease which resulted in the annual land rent increasing from $2.8 million to $10.8 million for the land lease property.

As a result of the increase in the annual land rent, the fair market value of the Land Lease Property has decreased by $60 million during the three months ended June 30, 2013. The decision delivered by the minority of the Arbitrators would have resulted in an annual land rent of $3,600. The Company has appealed the Arbitrators' decision.

NET INCOME
The Company's net income attributable to common shareholders for the three months ended June 30, 2013, was $23.0 million ($1.80 per share) compared to $91.3 million ($7.08 per share) for the same period in 2012. The decrease in net income of $68.3 million for the three months ended June 30, 2013, was primarily due to the increase in the land rent arbitration expense of $19.8 million, a decrease in fair value gains on real estate properties of $103.4 million, $60.0 million of which is due to the Land Lease Property, an increase in interest expense of $5.7 million, an increase in other expenses of $1.9 million due to the transaction costs incurred on the acquisition of the hotels and a decrease in management and advisory fees of $2.2 million.  These items were partially offset by an increase in NOI from the acquisitions completed in 2013 and 2012 of $10.0 million, an increase in comparative NOI before the land rent arbitration decision of $1.3 million, an increase in the net gain on the residential REIT units of $30.5 million, an increase in equity income from investments of $3.5 million, an increase in net sales of product and land of $2.0 million, a decrease in property management and corporate expenses of $1.1 million and a decrease in income taxes of $14.7 million.

NET OPERATING INCOME

(In thousands of dollars)	Three months ended June 30		Six months ended June 30
	2013	2012	2013	2012
Net operating income - Canadian properties
Multi-unit residential - Canada	$14,589	$15,076	$28,061	$28,323
Hotel	967	-	1,421	-
Retail - Canada	10,005	8,631	18,216	16,687
Office and industrial	10,229	10,148	20,140	20,008
	35,790	33,855	67,838	65,018
Net operating income - U.S. properties in U.S. dollars
Multi-unit residential - U.S.	US$13,451	US$4,315	US$23,203	US$8,861
Retail - U.S.	US$5,911	US$5,952	US $11,775	US$11,945
	US$19,362	US$10,267	US$34,978	US$20,806
Exchange amount to Canadian dollars	451	107	577	119
Net operating income - U.S. properties in Canadian dollars	19,813	10,374	35,555	20,925
Net operating income before land lease arbitration expense	$55,603	$44,229	$103,393	$85,943
Land rent arbitration expense	(20,158)	(355)	(20,513)	(710)
Net operating income	$35,445	$43,874	$82,880	$85,233

Net operating income ("NOI") for the three months ended June 30, 2013, decreased by $8.4 million to $35.4 million compared to $43.9 million in 2012, representing a decrease of 19.2%.  The decrease was predominantly the result of the increase in the land lease arbitration expense of $19.8 million which was partially offset by an increase in NOI from the acquisition of the hotel properties and the U.S. multi- unit residential properties acquired in 2012 and 2013 which increased NOI by $10.0 million.

FUNDS FROM OPERATIONS ("FFO")

FFO was calculated as follows:
(In thousands of dollars except for per share amounts)	Three months ended June 30							Six months ended June 30
	2013				2012			2013	2012
Net income attributable to common shareholders	$22,950				$91,274			$122,599	$142,936
Items not affecting cash:
Fair value loss (gain) on real estate properties	35,148				(68,206)			8,801	(72,982)
Fair value (gain) loss on Residential REIT Units	(22,892)				10,153			(28,153)	10,153
Non-controlling interests' share of fair value (loss) gain on real estate properties	(115)				1,378			(194)	1,520
Deferred income taxes	(5,381)				(357)			(4,526)	5,805
Depreciation on owner occupied property	26				26			52	52
Equity income from Morguard REIT	(22,197)				(19,675)			(54,722)	(39,023)
Morguard REIT's equity accounted FFO	10,659				9,125			21,243	17,766
Transaction costs incurred on business combination	1,829				-			1,829	-
Loss on sale of property	-				-			-	15
Funds from operations	$20,027				$23,718			$66,929	$66,242
Funds from operations
Per share amounts - basic and diluted	$1.58				$1.84			$5.25	$5.13

For the three months ended June 30, 2013, the Company recorded FFO of $20.0 million ($1.58 per share) compared to $23.7 million ($1.84 per share) in 2012.  The decrease in FFO of $3.7 million is predominantly due to the increase in the land rent arbitration expense of $19.8 million, a decrease in management and advisory fees of $2.2 million, an increase in interest expense of $5.7 million and an increase in distributions of $2.6 million to Morguard Residential REIT's non-controlling unitholders. These items were partially offset by an increase in NOI from the acquisitions completed in 2013 and 2012 of $10.0 million, an increase in comparative NOI before the land rent arbitration decision of $1.3 million, an increase in sales of product and land of $2.0 million, an increase in Morguard REIT's equity accounted FFO of $1.5 million, a decrease in property management and corporate expenses of $1.1 million and a decrease in current income taxes of $9.7 million. The change in foreign exchange rates had a positive impact on FFO of $177.

Excluding the net of tax impact of non-recurring items, including the increase in the land rent arbitration expense of $19.8 million, FFO for the three months ended June 30, 2013 would have been $34.2 million or $2.69 per share versus $23.7 million or $1.84 per share for the same period in 2012, which represents an increase in FFO of $10.5 million or 44.2%.

THIRD QUARTER DIVIDEND
The board of directors of Morguard Corporation announced today that the third quarterly, eligible dividend of 2012 in the amount of $0.15 per common share will be paid on September 30, 2013 to shareholders of record at the close of business on September 16, 2013.

Readers are cautioned that although the terms "Net Operating Income", and "Funds From Operations" are commonly used to measure, compare and explain the operating and financial performance of Canadian real estate companies and such terms are defined in the Management's Discussion and Analysis, such terms are not recognized terms under Canadian generally accepted accounting principles.  Such terms do not necessarily have a standardized meaning and may not be comparable to similarly titled measures presented by the other publicly traded entities.

The Company's unaudited condensed financial statements for the three months ended June 30, 2013, along with the Management's Discussion and Analysis will be available on the Company's website at www.morguard.com and will be filed with SEDAR at www.sedar.com.

Morguard Corporation is a real estate company, which owns a diversified portfolio of 121 retail, multi-unit residential, office and industrial properties comprising of 15,862 multi-unit residential suites, 1,056 hotel rooms and approximately 7.1 million square feet of commercial leasable space. Morguard Corporation also owns a 43.3% interest in Morguard Real Estate Investment Trust and a 48.7% effective interest in Morguard North American Residential Real Estate Investment Trust. Morguard also provides advisory and management services to institutional and other investors. For more information, visit the Company's website at www.morguard.com.

 

SOURCE: Morguard Corporation