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Morguard Real Estate Investment Trust Announces 2023 Third Quarter Results - Oct 25, 2023

Morguard Real Estate Investment Trust Announces 2023 Third Quarter Results

Oct 25, 2023

MISSISSAUGA, ON, Oct. 25, 2023 /CNW/ - Morguard Real Estate Investment Trust ("the Trust") (TSX: MRT.UN) today is pleased to announce its 2023 Third Quarter Results.

In thousands of dollars, except per-unit amounts

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Revenue from real estate properties

$62,512

$61,127

$189,219

$182,965

Net operating income

30,551

30,433

92,564

88,660

Fair value losses on real estate properties

(52,047)

(73,263)

(88,885)

(35,973)

Net (loss)/income

(39,665)

(58,279)

(46,650)

9,279

Funds from operations 1

13,957

16,633

45,211

47,821

Adjusted funds from operations 1,2

7,889

10,385

27,295

29,976

Amounts presented on a per unit basis





Net (loss)/income – basic

($0.62)

($0.91)

($0.73)

$0.14

Net (loss)/income – diluted

($0.62)

($0.91)

($0.73)

$0.14

Funds from operations – basic 1

$0.22

$0.26

$0.70

$0.75

Funds from operations – diluted 1

$0.19

$0.22

$0.61

$0.64

Adjusted funds from operations – basic 1,2

$0.12

$0.16

$0.42

$0.47

Adjusted funds from operations – diluted 1,2

$0.12

$0.15

$0.40

$0.43

Distributions per unit

$0.06

$0.06

$0.18

$0.18






1. The following represents a non-GAAP financial measure/ratio that does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. This measure should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. Additional information on this non-GAAP financial measure/ratio can be found under the MD&A section Part I, "Specified Financial Measures".

2. The Trust uses normalized productive capacity maintenance expenditures to calculate adjusted funds from operations.

3. Includes the dilutive impact of convertible debentures and presented on a cash settlement basis for consistency with industry practice for calculating FFO and AFFO.

SELECTED FINANCIAL INFORMATION
The table below sets forth selected financial data relating to the Trust's fiscal three and nine months ended September 30, 2023, and 2022. This financial data is derived from the Trust's condensed consolidated statements which are prepared in accordance with IFRS.


Three Months Ended September 30,

Nine Months Ended September 30,


2023

2022

% Change

2023

2022

% Change

Revenue from real estate properties

$62,512

$61,127

2.3 %

$189,219

$182,965

3.4 %

Property operating expenses

(17,714)

(16,410)

7.9 %

(53,774)

(51,608)

4.2 %

Property taxes

(12,122)

(12,111)

0.1 %

(36,400)

(36,394)

— %

Property management fees

(2,125)

(2,173)

(2.2 %)

(6,481)

(6,303)

2.8 %

Net operating income

30,551

30,433

0.4 %

92,564

88,660

4.4 %

Interest expense

(16,072)

(13,343)

20.5 %

(45,672)

(39,426)

15.8 %

General and administrative

(911)

(935)

(2.6 %)

(2,970)

(2,923)

1.6 %

Other items

(16)

(20)

(20.0 %)

(57)

(62)

(8.1 %)

Fair value losses on real estate properties

(52,047)

(73,263)

(29.0 %)

(88,885)

(35,973)

147.1 %

Net loss from equity-accounted investment

(1,170)

(1,151)

1.7 %

(1,630)

(997)

63.5 %

Net (loss)/income

($39,665)

($58,279)

(31.9 %)

($46,650)

$9,279

N/A

CONSOLIDATED OPERATING HIGHLIGHTS
The following is an analysis of net operating income by asset type:


Three Months Ended September 30,

Nine Months Ended September 30,


2023

2022

%

2023

2022

%

Enclosed regional centres

$9,994

$9,532

4.8 %

$31,386

$27,005

16.2 %

Community strip centres

5,779

5,648

2.3 %

17,180

16,951

1.4 %

Subtotal – retail

15,773

15,180

3.9 %

48,566

43,956

10.5 %








Single-/dual-tenant buildings

12,210

11,833

3.2 %

36,666

34,775

5.4 %

Multi-tenant buildings

2,082

2,818

(26.1 %)

5,974

8,141

(26.6 %)

Subtotal – office

14,292

14,651

(2.5 %)

42,640

42,916

(0.6 %)








Industrial

486

602

(19.3 %)

1,358

1,788

(24.0 %)

Net operating income

$30,551

$30,433

0.4 %

$92,564

$88,660

4.4 %

The increase in enclosed regional centres net operating income for the nine months ended September 30, 2023, is due to a one-time prior year property tax refund received on an enclosed regional centre in the amount of $2.8 million primarily for vacant space and space previously occupied by bankrupt or otherwise failed tenants. The decrease in multi-tenant office net operating income for the nine months ended September 30, 2023, is due to higher vacancy in this asset class. The decrease in industrial office net operating income for the nine months ended September 30, 2023, is due to temporary vacancy at one of the Trust's single tenant industrial properties.

The following is an analysis of revenue from real estate properties by segment:


Three Months Ended September 30,

Nine Months Ended September 30,


2023

2022

%

2023

2022

%

Industrial

$851

$993

(14.3 %)

$2,616

$3,116

(16.0 %)

Office – Single-/dual-tenant buildings

21,484

20,791

3.3 %

64,671

61,525

5.1 %

Office – Multi-tenant buildings

6,154

6,994

(12.0 %)

18,389

20,638

(10.9 %)

Retail – Community strip centres

9,312

8,775

6.1 %

27,924

27,215

2.6 %

Retail – Enclosed regional centres

24,711

23,574

4.8 %

75,619

70,471

7.3 %

Total

$62,512

$61,127

2.3 %

$189,219

$182,965

3.4 %

The following is an analysis of revenue from real estate properties by revenue type:

For the three months ended September 30,

2023

2022

Variance

Rental revenue

$38,111

$38,535

($424)

CAM recoveries

12,455

11,536

919

Property tax and insurance recoveries

9,430

8,981

449

Other revenue and lease cancellation fees

1,237

978

259

Parking revenue

1,376

1,143

233

Amortized rents

(97)

(46)

(51)


$62,512

$61,127

$1,385









For the nine months ended September 30,

2023

2022

Variance

Rental revenue

$114,522

$114,154

$368

CAM recoveries

37,572

35,376

2,196

Property tax and insurance recoveries

30,749

27,493

3,256

Other revenue and lease cancellation fees

3,494

3,810

(316)

Parking revenue

4,029

3,275

754

Amortized rents

(1,147)

(1,143)

(4)


$189,219

$182,965

$6,254

Property operating expenses include costs related to interior and exterior maintenance, insurance and utilities. Property operating expenses for the three months ended September 30, 2023, increased 7.9% to $17.7 million from $16.4 million for the same period in 2022. This increase is primarily due to increased security, insurance and environmental costs in 2023, coupled with lower bad debt recoveries in 2023.

Net operating income for the three months ended September 30, 2023, increased 0.4% as compared to 2022. This increase was the result of lower vacancy costs in 2023 in the enclosed mall asset class, offset by increases in vacancy costs in the multi-tenant office asset class.

Net operating income for the nine months ended September 30, 2023, increased 4.4% as compared to 2022. This increase includes a one-time prior year property tax refund received on an enclosed regional centre in the amount of $2.8 million primarily for vacant space and space previously occupied by bankrupt or otherwise failed tenants.

Interest expense for the three months ended September 30, 2023, increased 20.5% vs the same period in 2022. This increase is primarily due to higher interest rates on both variable and new fixed rate debt on a year-over-year basis, partially offset by a $12.0 million decline in overall debt levels on a year-over-year basis.

The Trust records its income producing properties at fair value in accordance with IFRS. These adjustments are a result of the Trust's regular quarterly IFRS fair value process. In accordance with this policy, the following fair value adjustments by segment have been recorded:


Three Months Ended September 30,

Nine Months Ended September 30,


2023

2022

2023

2022

Retail – enclosed regional centres

($1,394)

($38,816)

$72

($40,483)

Retail – community strip centres

(701)

(2,287)

(4,754)

11,456

Office

(54,272)

(29,963)

(95,940)

(17,083)

Industrial

4,320

(2,197)

11,737

10,137


($52,047)

($73,263)

($88,885)

($35,973)


Reported net loss for three months ended September 30, 2023, was $39.7 million as compared to loss of $58.3 million in 2022. This change is due to the fair value losses recorded in 2023, as described above.

FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
The Trust presents FFO and AFFO in accordance with the current definition of the REALpac.

FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS

In thousands of dollars, except per unit amounts

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

%

2023

2022

%

Net (loss)/income

($39,665)

($58,279)

(31.9 %)

($46,650)

$9,279

(602.7 %)

Adjustments:







Fair value losses on real estate properties 1

53,646

74,935

(28.4 %)

91,933

38,605

138.1 %

Amortization of right-of-use assets

21

20

5.0 %

62

62

— %

Payment of lease liabilities, net

(45)

(43)

4.7 %

(134)

(125)

7.2 %

Funds from operations – basic

13,957

16,633

(16.1 %)

45,211

47,821

(5.5 %)

Interest expense on convertible debentures

2,104

2,104

— %

6,278

6,278

— %

Funds from operations – diluted

$16,061

$18,737

(14.3 %)

$51,489

$54,099

(4.8 %)








Funds from operations – basic

$13,957

$16,633

(16.1 %)

$45,211

$47,821

(5.5 %)

Adjustments:







Amortized stepped rents 1

182

2

9,000.0 %

834

905

(7.8 %)

Normalized PCME

(6,250)

(6,250)

— %

(18,750)

(18,750)

— %

Adjusted funds from operations – basic

7,889

10,385

(24.0 %)

27,295

29,976

(8.9 %)

Interest expense on convertible debentures

2,104

2,104

— %

6,278

6,278

— %

Adjusted funds from operations – diluted

$9,993

$12,489

(20.0 %)

$33,573

$36,254

(7.4 %)















1. Includes respective adjustments included in net income from equity-accounted investment.


2. Includes the dilutive impact of convertible debentures and presented on a cash settlement basis for consistency with industry practice for calculating FFO and AFFO.

SPECIFIED FINANCIAL MEASURES
The Trust reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, this earnings release also uses specified financial measures that are not defined by IFRS which follow the disclosure requirements established by National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. Specified financial measures are categorized as non-GAAP financial measures, non-GAAP ratios, and other financial measures. Additional details on specified financial measures including supplementary financial measures, capital management measures and total segment measures are set out in the Trust's Management's Discussion and Analysis for the period ended September 30, 2023 and available on the Trust's profile on SEDAR at www.sedarplus.ca

The following Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. These measures should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. The Trust's management uses these measures to aid in assessing the Trust's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP financial measures, which supplement the IFRS measures, provide readers with a more comprehensive understanding of management's perspective on the Trust's operating results and performance.

FUNDS FROM OPERATIONS ("FFO")
FFO is a non-GAAP measure widely used as a real estate industry standard that supplements net income and evaluates operating performance but is not indicative of funds available to meet the Trust's cash requirements. FFO can assist with comparisons of the operating performance of the Trust's real estate between periods and relative to other real estate entities. FFO is computed by the Trust in accordance with the current definition of the Real Property Association of Canada ("REALpac") and is defined as net income adjusted for fair value changes on real estate properties and gains/(losses) on the sale of real estate properties. The Trust considers FFO to be a useful measure for reviewing its comparative operating and financial performance.

ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
AFFO is a non-GAAP measure that was developed to be a recurring economic earnings measure for real estate entities. The Trust presents AFFO in accordance with the current definition of the REALpac. The Trust defines AFFO as FFO adjusted for straight-line rent and productive capacity maintenance expenditures ("PCME"). AFFO should not be interpreted as an indicator of cash generated from operating activities as it does not consider changes in working capital.

Financial Statements and Management's Discussion and Analysis
The Trust's Q3 2023 Consolidated Financial Statements and Management's Discussion and Analysis will be made available on the Trust's website at www.morguard.com and have been filed with SEDAR at www.sedarplus.ca

Conference Call Details:

Date:                                        Thursday, October 26, 2023, 4:00 p.m. (ET)
Conference Call #:                   416-764-8688 or 1-888-390-0546
Conference ID #:                      19761950

About Morguard Real Estate Investment Trust
The Trust is a closed-end real estate investment trust, which owns a diversified portfolio of 46 retail, office and industrial income producing properties in Canada with a book value of $2.3 billion and approximately 8.2 million square feet of leasable space.

SOURCE Morguard Real Estate Investment Trust

For further information: Morguard Real Estate Investment Trust, K. Rai Sahi, President and Chief Executive Officer, T 905-281-4800; Andrew Tamlin, Chief Financial Officer, T 905-281-4800