Morguard Corporation Announces 2013 Third Quarter Results and Regular Eligible Dividend

TSX: MRC

MISSISSAUGA, ON, Nov. 7, 2013 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) announced its financial results for the three months ended September 30, 2013.

HIGHLIGHTS

• Completed an industrial development project, in which the Company has a 68.8% economic interest, of a single tenant, refrigerated distribution centre, consisting of 282,134 square feet (100%) of rentable area and is fully leased on a triple net basis for a term of 15 years.  The tenant, a major Canadian food manufacturer, will utilize this facility as its distribution centre for Eastern Canada;
• The Company's other development projects continue to progress on budget.  A further $22.0 million (Morguard's share) was invested in properties under development during Q3 2013;
• The Company benefited from strong occupancy rates. Multi-unit residential (Canada and U.S.) occupancy was 96.1% (Q3 2012 - 96.0%) and commercial occupancy (Canada and U.S., all commercial asset classes) was 93.0% (Q3 2012 - 91.4%);
• Reflecting significant acquisition activity that occurred in late 2012 and in the first half of 2013:
• Total revenues increased by 27.7% to $135.9 million compared to $106.4 million in 2012;
• Net operating income ("NOI") increased by 28.3% to $55.6 million as compared to $43.4 million in 2012;
• Consolidated funds from operations increased by 31.2% to $51.7 million, or $4.08 per share, compared to $39.4 million, or $3.07 per share in 2012; and
• Total assets as at September 30, 2013 were $5.2 billion, a 17.3% 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 September 30,		Nine months ended September 30,
(In thousands of dollars)	2013	2012	2013	2012
Revenue from income producing properties	$111,199	$79,341	$305,211	$233,565
Management and advisory fees	18,953	21,491	51,109	56,079
Interest and other	2,528	4,213	9,223	12,153
Sales of product and land	3,174	1,337	11,218	3,871
Total revenues	135,854	106,382	376,761	305,668
Revenue from income producing properties	$111,199	$79,341	$305,211	$233,565
Property operating costs and realty tax expense	(53,563)	(35,613)	(144,182)	(103,894)
Land lease arbitration expense	(2,005)	(355)	(22,518)	(1,065)
Net operating income	$55,631	$43,373	$138,511	$128,606
Consolidated funds from operations (FFO)	$51,653	$39,370	$125,472	$107,280
Consolidated FFO per share - basic and diluted	$4.08	$3.07	$9.87	$8.32
Net income attributable to common shareholders	$68,146	$119,449	$190,745	$262,385
Net income per share - basic and diluted	$5.38	$9.32	$15.00	$20.36

NET INCOME

The Company's net income attributable to common shareholders for the three months ended September 30, 2013, was $68.1 million ($5.38 per share) compared to $119.4 million ($9.32 per share) for the same period in 2012. The decrease in net income of $51.3 million for the three months ended September 30, 2013, was primarily due to the net decrease in fair value gains of $44.4 million, an increase in interest expense of $7.1 million, a decrease in management and advisory fees of $2.5 million, a decrease in interest and other income of $1.7 million and an increase in income taxes of $9.3 million.  These items were partially offset by an increase in NOI from the acquisitions completed in 2012 and 2013 of $13.6 million, an increase in equity income from investments of $1.0 million, a decrease in property management and corporate expenses of $1.9 million and a decrease in other income of $2.1 million.

NET OPERATING INCOME

(In thousands of dollars)	Three months ended September 30,		Nine months ended September 30,
	2013	2012	2013	2012
Net operating income - Canadian properties
Multi-unit residential - Canada	$13,939	$13,555	$42,000	$41,869
Hotel	1,918	269	3,793	538
Retail - Canada	8,058	8,069	26,274	24,758
Office and industrial	10,319	10,655	30,004	30,394
	34,234	32,548	102,071	97,559
Net operating income - U.S. properties in U.S. dollars
Multi-unit residential - U.S.	US$16,844	US$5,196	US$40,046	US$14,057
Retail - U.S.	US$5,700	US$6,036	US$17,475	US$17,981
	US$22,544	US$11,232	US$57,521	US$32,038
Exchange amount  to Canadian dollars	858	(52)	1,437	74
Net operating income - U.S. properties in Canadian dollars	23,402	11,180	58,958	32,112
Net operating income before land rent arbitration expense	$57,636	$43,728	$161,029	$129,671
Land rent arbitration expense	(2,005)	(355)	(22,518)	(1,065)
Net operating income	$55,631	$43,373	$138,511	$128,606

Net operating income for the three months ended September 30, 2013, increased by $12.2 million to $55.6 million compared to $43.4 million in 2012, representing an increase of 28.3%.  The increase was predominantly the result of the acquisitions of the hotel properties and U.S. multi-unit residential properties purchased in 2012 and 2013 which increased NOI by $13.6 million and was partially offset by the increase in land lease arbitration expenses of $1.7 million as a result of an arbitration decision received during the second quarter of 2013 with respect to the land underlying a mixed-used property located in Toronto, Ontario.

CONSOLIDATED FUNDS FROM OPERATIONS ("FFO")

The Company's consolidated FFO includes funds available to non-controlling interests and was calculated as follows:

		Three months ended		Nine months ended
		September 30,		September 30,
(In thousands of dollars, except for per share amounts)		2013	2012	2013	2012
Net income attributable to common shareholders		$68,146	$119,449	$190,745	$262,385
Items not affecting cash:
	Fair value  gain on real estate properties	(23,271)	(78,676)	(14,470)	(151,658)
	Fair value (gain) loss on Morguard Residential REIT Units, net	(15,993)	(3,286)	(44,146)	6,867
	Fair value gain on Morguard REIT 2012 debentures	(250)	—	(250)	—
	Fair value gain on conversion options of the Debentures of  Morguard Residential	(7)	—	(7)	—
	Distribution to Morguard Residential REIT's external unitholders	3,575	1,663	9,983	2,666
	Non-controlling interests' share of fair value gain on real estate properties	367	1,437	560	2,957
	Deferred income taxes	22,692	2,604	18,166	8,409
	Depreciation on owner occupied property	26	26	78	78
	Equity income from Morguard REIT	(13,994)	(12,555)	(68,716)	(51,578)
	Morguard REIT's equity accounted FFO	10,659	9,125	31,997	27,571
	Transaction costs incurred on business combination	—	—	1,829	—
	Gain on sale of property	(297)	(417)	(297)	(417)
Consolidated FFO		$51,653	$39,370	$125,472	$107,280
Consolidated FFO Per share amounts - basic and diluted		$4.08	$3.07	$9.87	$8.32
Consolidated FFO - Morguard's Share
FFO (from above)		$51,653	$39,370	$125,472	$107,280
Less non-controlling interest:
Morguard Residential REIT		(5,357 )	(1,613 )	(12,377 )	(2,906 )
Consolidated FFO - Morguard's share		$46,296	$37,757	$113,095	$104,374
Per share amounts - basic and diluted		$3.66	$2.95	$8.89	$8.10

For the three months ended September 30, 2013 the Company recorded consolidated FFO of $51.7 million ($4.08 per share) compared to $39.4 million ($3.07 per share) in 2012.  The increase in FFO of $12.3 million is predominantly due to an increase in NOI from the acquisitions completed in 2012 and 2013 of $13.6 million, an increase in Morguard REIT's equity accounted FFO of $1.5 million, a decrease in property management and corporate expenses of $1.9 million and a decrease in current taxes of $10.7 million. These items were partially offset by an increase in land rent arbitration expense of $1.7 million, a decrease in management and advisory fees of $2.5 million, a decrease in interest and other income of $1.7 million, an increase in interest expense of $7.2 million and a decrease in other income of $2.1 million. The change in foreign exchange rates increased consolidated FFO by $478.

Morguard's share of consolidated FFO totaled $46.3 million or $3.66 per share versus $37.8 million or $2.95 per share for the same period in 2012, which represents an increase of $8.5 million or 22.6%.

FOURTH QUARTER DIVIDEND

The board of directors of Morguard Corporation announced today that the fourth quarterly, eligible dividend of 2013 in the amount of $0.15 per common share will be paid on December 31, 2013 to shareholders of record at the close of business on December 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 September 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 122 retail, multi-unit residential, office and industrial properties comprising of 15,862 multi-unit residential suites, 1,220 hotel rooms and approximately 7.1 million square feet of commercial leasable space.  Morguard Corporation also owns a 44.2% 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