Dear Fellow Unitholders,
In 2021, COVID-19 continued to be part of our daily conversation. Travel bans,
closures of essential businesses, quarantine periods and social distancing
impacted our economy and disrupted the way we lived; but as the year
progressed, we began to see the light at the end of the tunnel. Our 2021
Morguard REIT annual report demonstrates that the real estate sector is
There was accelerated economic growth in Canada during the second half
of the year driving national employment higher. And the various real estate
classes showed positive signs. Overall occupancy rates in the office sector
have remained steady over the last year and are approximately the same as
they were pre-COVID. Demand in the industrial property sector exceeded
supply, with multiple bid scenarios common, along with higher rents. And
retail sector market fundamentals stabilized, with leasing activity picking
up and sales revenues increasing.
There are many indications that the Trust is successfully recovering. People
are coming back to our offices and shoppers are coming back to our malls
with reopenings taking place across our country.
The Trust’s Net Asset Value stabilized in 2021, underlying the economic
improvement that was taking place across the country. Fair value losses
on real estate properties were $61 million versus $420 million in 2020. Same
Asset Net Operating Income from our community strip centres rose by over
2% while enclosed centres in the West were generating sales that were
almost back to pre-pandemic norms. Same Asset Net Operating Income for
industrial properties increased a healthy 12.5%, with the figure for our office
buildings stable except in Alberta where other economic factors are in play.
And rent collections in all these sectors are essentially back to normal.
During the second year of the pandemic, we continued to respond quickly
and effectively to protect the health and safety of our tenants, employees
and visitors to our buildings. We used government-supplied tools such as the
Canada Emergency Rent Subsidy (CERS) to support the financial health
of our tenants during this challenging time.
Our FFO increased a solid 3% in 2021, principally from a recovery in retail
and industrial assets. We are looking forward to growing our FFO and NOI
over the next 12 months as our enclosed malls reopen and we begin to
re-envision and enhance their merchandising mix and bring in more service
retail. The Trust’s strip centres will also continue to have positive impact
on our bottom line thanks to their high occupancy and stable growth.
Our diversity by asset class, geography and quality has truly worked in
our favour, as has our commitment to creating long-term value for our
portfolio. Over the last two years, the Trust has undertaken over $28 million
in predevelopment and development activities, spreading the budget
across 15 assets.
We have created pathways that better link some of our office buildings
to transit and to the city core in both Ottawa and Calgary. We have
remerchandised some of our retail centres to meet the needs of their
surrounding communities by reconfiguring large vacancies left by stores like
Target and Sears. And, we have started repositioning some of our finest
commercial office assets such as Rice Howard Place (formerly Scotia Place)
in Edmonton, Alberta and Place Innovation in Saint-Laurent, Quebec, to
increase rental rates and occupancy. In addition, I am pleased to report that
there are significant opportunities for intensification on some of our existing
assets, including Burquitlam Place in Coquitlam, B.C.
Financially, we are primed for success moving forward. Our real estate
portfolio of 27 office and industrial properties and 19 retail assets in six
Canadian provinces is worth $2.5 billion. Funds From Operations (FFO) per
unit this year was $1.07 per share versus $1.08 a year ago.
We are in a healthy liquidity position and are capable of financing future
endeavours. Our liquidity is $184.8 million versus $141.9 million a year ago
and we have an unencumbered pool of $314.6 million. We completed a
$150 million public offering of convertible debentures which successfully
transacted at $159 million. We sold a community strip centre in London,
Ontario. And in addition to our monthly $0.02 unit/distribution, Morguard REIT
declared a special distribution of $0.115 per unit in response to the capital
gains from the community strip centre sale.
Looking forward, I see the solid long-term potential of the Trust. We are
poised to create value for our portfolio by reimagining our current assets and
by seizing any new opportunities that may become available in the future.
Thank you to our unitholders, employees and partners. I truly appreciate your
confidence in Morguard REIT, and I look forward to having you with us in the
K. Rai Sahi
Chairman, President and Chief Executive Officer