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Morguard Corporation Announces 2020 First Quarter Results, Regular Eligible Dividend and Provides Operational Update Related to COVID-19

MISSISSAUGA, ON , May 5, 2020 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (MRC.TO) today announced its financial results for the three months ended March 31, 2020 , including a brief operational and liquidity update as we continue to focus on managing through the  COVID-19 pandemic.

Reporting Highlights

  • Total revenue increased by $2.8 million , or 1.0% to $292.3 million for the three months ended March 31, 2020 , compared to $289.5 million for the same period in 2019.

  • Net operating income ("NOI") decreased by $2.0 million , or 1.9%, to $102.6 million for the three months ended March 31, 2020 , compared to $104.6 million for the same period in 2019, primarily due to lower NOI from the retail and hotel portfolios, partially offset by higher NOI from the net impact of acquisitions and dispositions.

  • Net income decreased by $47.8 million to a net loss of $8.9 million for the three months ended March 31, 2020 , compared to net income of $39.0 million for the same period in 2019, primarily due to a decrease in net fair value gain of $57.8 million and an increase in provision for impairment of $23.9 million , partially offset by a decrease in corporate expense of $17.4 million related to the Company's Stock Appreciation Rights ("SARs") plan and a decrease in income tax expense of $28.0 million as compared to 2019.

  • Normalized FFO decreased by $1.1 million , or 2.1% to $51.4 million for the three months ended March 31, 2020 , compared to $52.5 million for the same period in 2019.


Operational and Balance Sheet Highlights

  • The Company recognizes the impact of the novel strain of coronavirus ("COVID-19") has on many of its tenants in North America and its stakeholders, and is committed in taking measures to protect the health of its employees, tenants and communities.

  • As at March 31, 2020 , the Company's total assets were $11.9 billion compared to $11.7 billion as at December 31, 2019.

  • During the year, occupancy was consistent across all asset classes, supporting the Company's business objective of generating stable and increasing cash flow through its diversified portfolio of real estate assets.

  • On February 18, 2020 , Morguard purchased the remaining interest in Temple Hotels Inc. ("Temple") not already owned by the Company. All Temple shareholders, excluding Morguard, received $2.10 per common share from Morguard. Subsequently on February 19, 2020 , Temple de-listed from the TSX.

  • On March 25, 2020 , the Company disposed of a 59% economic interest in an industrial property comprising 284,000 square feet located in Puslinch, Ontario , for gross proceeds of $45.8 million , including closing costs, and the purchaser assumed the mortgage secured by the property in the amount of $12.5 million .


Financial Highlights

For the three months ended March 31,


(in thousands of dollars, except per common share)

2020

2019

Revenue from real estate properties

$228,266

$219,840

Revenue from hotel properties

47,805

53,627

Management and advisory fees

12,197

11,651

Interest and other income

4,042

4,399

Total revenue

$292,310

$289,517







Revenue from real estate properties

$228,266

$219,840

Revenue from hotel properties

47,805

53,627

Property operating expenses

(130,934)

(124,379)

Hotel operating expenses

(42,536)

(44,514)

Net operating income

$102,601

$104,574







Net income attributable to common shareholders

$33,412

$33,486

Net income per common share – basic and diluted

$2.97

$2.97

Funds from operations

$6,993

$53,566

FFO per common share – basic and diluted

$0.62

$4.74

Normalized funds from operations

$51,356

$52,477

Normalized FFO per common share – basic and diluted

$4.56

$4.65

Operational and Liquidity Update

During March 2020 , the outbreak of COVID-19 resulted in governments enacting emergency measures to contain the spread of the virus. These measures, which include the implementation of travel bans, closures of non-essential businesses, self-imposed quarantine periods and social distancing, have caused an economic slowdown and material disruption to business. Government has reacted with interventions intended to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time. It is currently not possible to reliably estimate the length and severity of these developments and the impact on the financial performance and financial position of the Company in future periods.

The Company recognizes the impact COVID-19 has on many of its tenants in North America and its stakeholders, and is committed in taking measures to protect the health of its employees, tenants and communities. In March, Morguard initiated its crisis management plan with a team mandated to maintain a safe environment for our tenants, residents, employees and stakeholders, coordinating efforts across our portfolio, standardizing communications and responding as circumstances demand.

K. Rai Sahi , Chief Executive Officer of Morguard Corporation commented:

"The unprecedented COVID-19 global event has demonstrated our strength and resilience as an organization. By activating our Crisis Management Team and allocating appropriate resources, we have coordinated efforts across our portfolios and taken definitive action to ensure the health and well-being of those around us. At this unique time, we celebrate our employees and service partners who continue to provide exceptional service to Morguard communities across North America by upholding our core values." 

These are unprecedented times. Everyone has been impacted by the global efforts to reduce the spread of COVID-19. With the guidance of public health authorities, and at the direction of various levels of government, Morguard has implemented measures to help reduce the spread of COVID-19 including:

  • eliminating amenities deemed to be risky and ensuring the continuation of critical services;

  • intensified cleaning, focusing staff efforts on cleaning high-touch point areas at all our properties using approved cleaning products;

  • management offices are staffed but doors are locked;

  • maintenance orders for non-emergency repairs have been deferred;

  • added additional hand sanitizers to help tenants and residents maintain recommended practices for hand washing; and

  • posted health and safety best practice reminders to increase awareness of the most current guidelines.


We are currently monitoring the ongoing developments with regards to COVID-19 and are committed in ensuring a healthy and safe environment, adjusting our service model as necessary.

Despite the recent volatility, our core philosophy remains strong:

  • Real estate is a defensive position during economic uncertainty.

  • The strength of our diversified real estate portfolio provides greater stability during volatility. Historically, this diversification has helped make our financial performance more reliable over time, providing insulation from downturns.

  • We will shift away from the risks and towards the opportunities as we move ahead.


Morguard's strategically diversified asset portfolio and healthy, conservative debt ratios and financial resources provide strength against economic and real estate cycles. Morguard has always been driven by our commitment to real estate for the long term. Our experience has proven that this persistence has driven greater value for our shareholders year over year, and our diversified portfolio and conservative debt level position us well against any potential challenges. We will continue to carry on with this approach.

LIQUIDITY

The Company has liquidity of approximately $300 million comprised of $180 million in cash and $120 million available under its revolving credit facilities. In addition, the Company has approximately $990 million of unencumbered income producing properties which could be financed. To further enhance liquidity, the Company has narrowed down the scope of its capital expenditure program to ensure the availability of resources, allocating an amount that enables the Company to maintain the structural and overall safety of our properties. Management has also implemented various initiatives to reduce or defer operating expenses, property tax installments, hydro payments and corporate income tax installments. Management is also monitoring various government assistance programs in Canada and the U.S. structured to provide relief from personnel costs and commercial rent subsidies.

The Company has approximately $292 million of mortgages payable maturing during 2020 having an aggregate loan-to-value ratio of 30% which management expects to be able to refinance these loans at similar or favorable terms. In addition, the Company has $200 million of senior unsecured debentures maturing in November 2020 . The Company expects to be able to use current liquidity and to issue new debt instruments sufficient to permit the repayment of its 2020 maturities.

APRIL 2020 COLLECTIONS & OPERATIONAL UPDATE

As at May 5, 2020 , the Company's collection of April rental revenue is summarized below by asset class:

Asset Class

% Collected

% Rental
Revenue

Residential

95.9%

41.9%

Retail

47.2%

27.3%

Office

92.8%

29.6%

Industrial

86.6%

1.2%

Total

81.6%

100.0%

The following provides an operating update on the Company's portfolio by asset class:

RESIDENTIAL

The Company has halted evictions for non-payment of rent and implemented a rent deferral program for our residential tenants who are financially constrained due to the impact of COVID-19. The Company will also ensure pertinent and timely information regarding Government financial support programs is shared with tenants. In addition, commencing with April's rental payment, the Company has waived the collection of recent rental increases and late fees for existing tenants and will suspend collection of further rental increases during this period of crisis. Currently 3.5% of residential tenants have requested deferred payment plans.

As at May 5, 2020 , the Company has collected approximately 95.9% (97.0% in Canada / 95.2% in the U.S.) of April residential rental revenue which is materially in line with historical collection rates. Management will monitor rent collections and compassionately follow up with those accounts in arrears as the impact of the pandemic continues to weigh on the North American economy over the remainder of the year.

As at May 5, 2020 , the Company's occupancy remains stable at 95.4% in Canada and the U.S. as leasing agents work remotely and utilize the use of online technology to continue leasing activity following the onset of the pandemic and social distancing guidelines. Generally speaking, current conditions including social distancing has reduced leasing traffic. Management will closely monitor traffic and turnover levels in the coming months as we approach our peak leasing season.

RETAIL & OFFICE

The order to close non-essential businesses issued by various levels of government across North America has significantly impacted our retail tenants. As at May 5, 2020 , all except one of the Company's enclosed malls are open. Across the Company's retail portfolio, approximately 40% of retail stores are currently open (measured by gross leasable area), with the remaining 60% closed. Retail tenants that have closed represent approximately 16% of the Company's annualized revenues.

Buildings within the Company's office portfolio have generally remained open during the pandemic, however, due to closure of non-essential businesses and social distancing protocols most our tenants have implemented a work-from-home protocol. The Company has a significant amount of office space leased to government tenants. This will help mitigate the risk of non-payment of rent. Approximately 37% of the Company's office annualized rental revenue is derived from government tenants.

The Company is working with all tenants to review their circumstances and to consider rent deferrals as necessary and are being especially supportive of small business retail tenants. Deferrals are being considered on a case-by- case basis. As at May 5, 2020 , most retailers are waiting for clarification on the extent of the economic crisis before settling deferral terms. The federal government has also introduced legislation to assist landlords and small businesses with their rent obligations during the COVID-19 pandemic.

HOTELS

The Company has undertaken significant steps to mitigate the operational and financial impacts from emergency measures enacted to combat the COVID-19 pandemic. As at May 5, 2020 , of the Company's 39 hotels, 20 are currently open for business at reduced occupancy levels and are serving guests in compliance with government health guidelines. The temporary closure of 19 hotels allows the Company to minimize any financial impact and to consolidate operations at certain hotels within the same sub-market. The Company's hotel asset class represents less than 10% of annualized NOI.

Net Income (Loss)

Net loss for the three months ended March 31, 2020 , was $8.9 million compared to net income of $39.0 million in 2019. The decrease in net income of $47.8 million for the three months ended March 31, 2020 , was primarily due to the following:

  • A decrease in net operating income of $2.0 million primarily due to lower NOI from the retail and hotel portfolio, partially offset by higher NOI from the net impact of acquisitions and dispositions. 

  • An increase in interest expense of $2.3 million mainly due to higher interest on Unsecured Debentures and interest on bank indebtedness, partially offset by lower interest on convertible debentures;

  • A decrease in property management and corporate expense of $17.4 million , primarily due to a decrease in non-cash compensation expense related to the Company's SARs plan;

  • An increase in provision for impairment of $23.9 million ;

  • A decrease in non-cash net fair value gain of $57.8 million , mainly due to a net fair loss recorded on the Company's real estate properties and an increase in fair value loss on the Company's marketable securities, partially offset by an increase in the fair value gain on Morguard Residential REIT Units;

  • An increase in equity loss from investments of $4.0 million , mainly due to an increase in fair value loss;

  • An increase in other expense of $3.1 million , primarily due to a higher foreign exchange loss compared to 2019 and lower income on insurance proceeds; and

  • A decrease in income taxes (current and deferred) of $28.0 million .


Net Operating Income

NOI decreased by $2.0 million , or 1.9%, during the three months ended March 31, 2020 , to $102.6 million , compared to $104.6 million generated in 2019, and is further analyzed by asset type below.

For the three months ended March 31,




(in thousands of dollars)



2020

2019

Multi-suite residential



$58,632

$51,076

Retail



33,834

36,811

Office



34,760

33,727

Industrial



1,956

2,148

Hotel



5,269

9,113

Adjusted NOI



134,451

132,875

IFRIC 21 adjustment – multi-suite residential



(27,656)

(24,158)

IFRIC 21 adjustment – retail



(4,194)

(4,143)

NOI



$102,601

$104,574







Adjusted NOI for the three months ended March 31, 2020 , increased by $1.6 million , or 1.2% to $134.5 million , compared to $132.9 million in 2019 primarily due to the following:

  • An increase in the Canadian residential portfolio of $1.9 million primarily resulting from an increase of $1.4 million from rental rate growth and improved occupancy;

  • An increase in U.S. residential NOI of US$4.0 million primarily from an increase of US$3.6 million due to the acquisition of the remaining 51% interest in the Marquee at Block 37 and consolidation of its equity investment interest during the fourth quarter of 2019 and from rental rate growth and improved occupancy, partially offset by a decrease of US$0.6 million due to the sale of five properties located in Louisiana , during the first and second quarters of 2019;

  • A decrease of $3.0 million mainly in Canadian retail properties resulting from an decrease in lease cancellation fees of $0.5 million , a decrease of $1.1 million due to non-recurring income from a prior year realty tax refund and a settlement of disputed charges and a decrease of $0.9 million due to lower base rent, lower occupancy and increased non-recoverable operating expense;

  • An increase in the office portfolio of $1.0 million , primarily due to the acquisition of two properties during 2019, which resulted in an increase of $2.2 million , an increase of $0.3 million mainly due to higher base rents, partially offset by a decrease of $1.2 million due to a rental abatement provided to a tenant in a property located in Calgary, Alberta , and a decrease of $0.3 million from lower lease cancellation fees;

  • A decrease in the hotel portfolio of $3.8 million primarily due to a decrease of $4.6 million decrease in revenue caused by the COVID-19 pandemic, partially offset by an increase in net operating income of $0.7 million at the newly re-developed, dual-branded Hilton Garden Inn and Homewood Suites by Hilton located in Ottawa, Ontario which commenced operations on January 1, 2019 ; and

  • An increase of $1.8 million due to the change in the U.S. dollar foreign exchange rate.


Funds From Operations

For the three months ended March 31, 2020 , the Company recorded FFO of $7.0 million ( $0.62 per common share), compared to $53.6 million ( $4.74 per common share) in 2019. The decrease in FFO of $46.6 million is mainly due to the following: 

  • An increase in Adjusted NOI of $1.6 million , primarily due to lower NOI from the retail and hotel portfolio, partially offset by higher NOI from the net impact of acquisitions and dispositions. 

  • An increase in interest expense of $2.3 million , mainly due to higher interest on Unsecured Debentures resulting from the issuance of the Series E and Series F unsecured debentures in January 2019 and November 2019 , respectively, and higher interest on bank indebtedness, partially offset by lower interest on convertible debentures due to the repayment of Temple's Series E convertible debentures in April 2019 ;

  • A decrease in property management and corporate expense of $17.4 million , primarily due to a decrease in non-cash compensation expense related to the Company's SARs plan;

  • An increase in current income taxes of $1.4 million ;

  • An increase in the non-controlling interests' share of FFO of $1.9 million ; and

  • A decrease in unrealized changes in the fair value of the Company's marketable securities of $62.0 million .


The change in foreign exchange rate had a positive impact on FFO of $0.1 million ( $0.01 per common share).

Normalized FFO for the three months ended March 31, 2020 , was $51.4 million , or $4.56 per common share, versus $52.5 million , or $4.65 per common share, for the same period in 2019, which represents a decrease of $1.1 million , or 2.1%.  Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.

Subsequent Events

On April 15, 2020 , the Company completed the financing of a multi-suite residential property located in Boynton Beach, Florida , in the amount of US$26.5 million at an interest rate of 3.08% and for a term of 10 years.

Second Quarter Dividend

The Board of Directors of Morguard Corporation announced that the second quarterly, eligible dividend of 2020 in the amount of $0.15 per common share will be paid on June 30, 2020 , to shareholders of record at the close of business on June 15, 2020 .

The Company's unaudited condensed consolidated financial statements for the three months ended March 31, 2020 , along with 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.

Non-IFRS Measures

The Company's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). The following measures, NOI, Adjusted NOI, Comparative NOI, FFO and Normalized FFO (collectively, the "non-IFRS measures") as well as other measures discussed elsewhere in this press release, do not have a standardized meaning prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers in similar or different industries. The Company uses these measures to better assess the Company's underlying performance and financial position and provides these additional measures so that investors may do the same. Details on non-IFRS measures are set out in the Company's Management's Discussion and Analysis for the three months ended March 31, 2020 and available on the Company's profile on SEDAR at www.sedar.com.

About Morguard Corporation

Morguard Corporation is a real estate company, with total assets owned and under management valued at $20.1 billion . Morguard owns a diversified portfolio of 206 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,637 residential suites, approximately 16.9 million square feet of commercial leasable space and 5,903 hotel rooms. Morguard also currently owns a 58.9% interest in Morguard Real Estate Investment Trust and a 44.8% 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


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