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Morguard Corporation Announces 2024 Second Quarter Results and Regular Eligible Dividend - Aug 7, 2024

Morguard Corporation Announces 2024 Second Quarter Results and Regular Eligible Dividend

Aug 7, 2024

MISSISSAUGA, ON, Aug. 7, 2024 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) is pleased to announce its financial results for the three and six months ended June 30, 2024.

Operational and Balance Sheet Highlights

  • The Company ended the second quarter in a strong liquidity position with $632.5 million of cash and available credit facilities, and a $1.1 billion pool of unencumbered properties and other investments.
  • During the second quarter, a retail property in Calgary, Alberta, was sold for net proceeds of $37.1 million, including closing costs, and the Company repaid the mortgage payable secured by the property in the amount of $17.0 million.
  • Utilizing proceeds from the sale of 14 hotels on January 18, 2024 (the "Hotel Portfolio Disposition"), the Company lowered its non-consolidated indebtedness to gross book value ratio(1) to 38.5% at June 30, 2024, compared to 43.2% at December 31, 2023.
  • As at June 30, 2024, the Company's total assets were $11.5 billion, compared to $11.6 billion at December 31, 2023.

Reporting Highlights

  • Total revenue from real estate properties increased by $8.3 million, or 3.4%, to $254.9 million for the three months ended June 30, 2024, compared to $246.6 million for the same period in 2023.
  • Total revenue from hotel properties decreased by $35.3 million, or 80%, to $8.8 million for the three months ended June 30, 2024, compared to $44.1 million for the same period in 2023, primarily due to the Hotel Portfolio Disposition.
  • Comparative NOI increased by $4.1 million, or 3.0%, to $139.9 million for the three months ended June 30, 2024, compared to $135.8 million for the same period in 2023.
  • Adjusted NOI(1) decreased by $8.8 million, or 5.8%, to $142.4 million for the three months ended June 30, 2024, compared to $151.2 million for the same period in 2023, primarily due to the Hotel Portfolio Disposition, partially offset by an increase in average monthly rent ("AMR") within the multi-suite residential segment.
  • Normalized funds from operations(1) ("Normalized FFO") was $51.3 million, or $4.74 per common share, for the three months ended June 30, 2024. This represents a decrease of $10.9 million, or 17.5%, compared to $62.2 million, or $5.67 per common share for the same period in 2023.
  • Net income decreased by $40.4 million to $55.4 million for the three months ended June 30, 2024, compared to $95.8 million for the same period in 2023, primarily due to a decrease in non-cash fair value gain on real estate properties.

(1) Refer to Specified Financial Measures

Financial Highlights 


Three months ended
June 30

Six months ended
June 30

(in thousands of dollars)

2024

2023

2024

2023

Revenue from real estate properties

$254,858

$246,546

$511,947

$492,918

Revenue from hotel properties

8,826

44,149

19,263

75,308

Management and advisory fees

10,522

10,984

20,179

21,134

Interest and other income

4,325

4,343

8,808

9,439

Total revenue

$278,531

$306,022

$560,197

$598,799

Revenue from real estate properties

$254,858

$246,546

$511,947

$492,918

Revenue from hotel properties

8,826

44,149

19,263

75,308

Property operating expenses

(99,841)

(96,651)

(262,985)

(253,480)

Hotel operating expenses

(5,964)

(28,816)

(15,598)

(54,399)

Net operating income ("NOI")

$157,879

$165,228

$252,627

$260,347

Net income attributable to common shareholders

$53,858

$89,818

$184,304

$55,128

Net income per common share – basic and diluted

$4.98

$8.19

$17.04

$5.01

Funds from operations(1)

$47,381

$55,351

$79,324

$88,003

FFO per common share – basic and diluted(1)

$4.38

$5.05

$7.33

$8.00

Normalized funds from operations(1)

$51,270

$62,173

$103,846

$112,439

Normalized FFO per common share – basic and diluted(1)

$4.74

$5.67

$9.60

$10.23

(1) Refer to Specified Financial Measures.





Total revenue during the three months ended June 30, 2024, decreased by $27.5 million to $278.5 million compared to $306.0 million in 2023, primarily due to a decrease in revenue from hotel properties in the amount of $35.3 million, due to the Hotel Portfolio Disposition, partially offset by an increase in revenue from real estate properties in the amount of $8.3 million, primarily due to higher AMR within the multi-suite residential segment and from the net impact of acquisition and disposition of properties.

Net income for the three months ended June 30, 2024 was $55.4 million, compared to $95.8 million in 2023. The decrease in net income of $40.4 million for the three months ended June 30, 2024, was primarily due to the following:

  • A decrease in net operating income of $7.3 million, mainly due to the Hotel Portfolio Disposition, partially offset by an increase in AMR at multi-suite residential properties;
  • An increase in non-cash net fair value loss of $42.9 million, mainly due to a lower fair value gain on real estate properties; and
  • A decrease in income tax expense (current and deferred) of $3.1 million, mainly due to a lower fair value gain recorded on the Company's Canadian and U.S. properties, partially offset by EIFEL Rules which became substantively enacted during the second quarter of 2024.

Total revenue during the six months ended June 30, 2024, decreased by $38.6 million to $560.2 million compared to $598.8 million in 2023, primarily due to a decrease in revenue from hotel properties in the amount of $56 million, due to the Hotel Portfolio Disposition, partially offset by an increase in revenue from real estate properties in the amount of $19 million, primarily due to higher AMR within the multi-suite residential segment, an increase in occupancy and recoveries of operating expenses at the retail and office portfolio, and from the net impact of acquisition and disposition of properties.

Net income for the six months ended June 30, 2024 was $172.2 million, compared to $64.5 million in 2023. The increase in net income of $107.7 million for the six months ended June 30, 2024, was primarily due to the following:

  • A decrease in net operating income of $7.7 million, mainly due to the Hotel Portfolio Disposition, partially offset by an increase in AMR at multi-suite residential properties;
  • A decrease in amortization of hotel properties and other of $8.1 million;
  • An increase in gain on sale of hotel properties of $150.6 million, due to the Hotel Portfolio Disposition;
  • An increase in non-cash net fair value loss of $62.2 million, mainly due to a lower fair value gain on real estate properties; and
  • A decrease in income tax expense (current and deferred) of $19.6 million, mainly due to a lower fair value gain recorded on the Company's Canadian and U.S. properties, partially offset by EIFEL Rules which became substantively enacted during the second quarter of 2024.

Average Occupancy Levels

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

The following table provides occupancy by asset class for the following periods:


Suites/GLA  

Square Feet  


Jun.

2024

Mar.

2024

Dec.

2023

Sep.

2023

Jun.

2023

Multi-suite residential

17,798


95.3 %

95.6 %

96.1 %

96.1 %

96.7 %

Retail

7,754,000

(1)

93.6 %

93.8 %

94.0 %

93.5 %

93.2 %

Office(2)

8,588,500


88.3 %

87.9 %

88.4 %

88.1 %

85.9 %

(1) Retail occupancy has been adjusted to exclude development space of 379,562 square feet of GLA.

(2) Office includes industrial properties with 1,044,000 square feet of GLA.

Adjusted Net Operating Income ("Adjusted NOI")

The following table provides a reconciliation of Adjusted NOI to its closely related financial statement measurement for the following periods:


Three months ended
June 30 

Six months ended
June 30

(in thousands of dollars)

2024

2023

2024

2023

Multi-suite residential

$73,081

$70,378

$143,502

$135,012

Retail

32,065

31,845

64,352

64,810

Office(1)

34,343

33,632

68,837

66,625

Hotel

2,862

15,333

3,665

20,909

Adjusted NOI

142,351

151,188

280,356

287,356

IFRIC 21 adjustment - multi-suite residential  

12,627

12,220

(24,576)

(23,561)

IFRIC 21 adjustment - retail

2,901

1,820

(3,153)

(3,448)

NOI

$157,879

$165,228

$252,627

$260,347

(1) Includes industrial properties with NOI for the three and six months ended June 30, 2024 of $2,639 (2023 - $1,457) and $5,116 (2023 - $2,964), respectively.

For the three and six months ended June 30, 2024, Adjusted NOI decreased by $8.8 million and $7.0 million, respectively, primarily due to the Hotel Portfolio Disposition, partially offset by an increase in AMR within the multi- suite residential segment.

Funds From Operations and Normalized FFO

The following tables provide a reconciliation of FFO and Normalized FFO to its closely related financial statement measurement for the following periods: 


Three months ended
June 30 

Six months ended
June 30

(in thousands of dollars)

2024

2023

2024

2023

Multi-suite residential

$73,081

$70,378

$143,502

$135,012

Retail

32,065

31,845

64,352

64,810

Office

34,343

33,632

68,837

66,625

Hotel

2,862

15,333

3,665

20,909

Adjusted NOI

Other Revenue

142,351

151,188

280,356

287,356

Management and advisory fees

10,522

10,984

20,179

21,134

Interest and other income

4,325

4,343

8,808

9,439

Equity-accounted FFO

573

1,681

1,648

3,069


15,420

17,008

30,635

33,642

Expenses and Other





Interest

(63,234)

(64,976)

(128,116)

(127,703)

Principal repayment of lease liabilities

(382)

(414)

(783)

(824)

Property management and corporate

(21,609)

(22,575)

(44,940)

(44,481)

Internal leasing costs

932

1,432

2,137

2,074

Amortization of capital assets

(309)

(330)

(590)

(661)

Current income taxes

(5,772)

(2,229)

(4,820)

(2,091)

Non-controlling interests' share of FFO

(13,912)

(15,932)

(27,569)

(32,043)

Unrealized changes in the fair value of financial instruments

(6,272)

(7,874)

(26,906)

(26,450)

Other income (expense)

168

53

(80)

(816)

FFO

$47,381

$55,351

$79,324

$88,003

FFO per common share amounts – basic and diluted

$4.38

$5.05

$7.33

$8.00

Weighted average number of common shares outstanding (in thousands):





Basic and diluted

10,813

10,967

10,813

10,994

 


Three months ended
June 30 

Six months ended
June 30

(in thousands of dollars)

2024

2023

2024

2023

FFO (from above)

$47,381

$55,351

$79,324

$88,003

Add/(deduct):

Unrealized changes in the fair value of financial instruments

 

6,272

 

7,874

 

29,606

 

26,450

SARs plan increase (decrease) in compensation expense

(547)

(134)

310

(809)

Lease cancellation fee and other

(2,399)

(1,112)

(3,436)

(1,456)

Tax effect of above adjustments

563

194

742

251

Normalized FFO

$51,270

$62,173

$103,846

$112,439

Per common share amounts – basic and diluted

$4.74

$5.67

$9.60

$10.23

Third Quarter Dividend and Director Appointment

The Board of Directors of Morguard Corporation announced that the third quarterly, eligible dividend of 2024 in the amount of $0.15 per common share will be paid on September 27, 2024, to shareholders of record at the close of business on September 16, 2024.

The Board of Directors of Morguard Corporation is pleased to announce that George Armoyan has been appointed as a director of the Company effective August 7, 2024.

Specified Financial Measures

The Company 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 for non-GAAP financial measures. 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 Company's Management's Discussion and Analysis for the three and six months ended June 30, 2024 and available on the Company'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 Company's management uses these measures to aid in assessing the Company's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP financial measures described below, which supplement the IFRS measures, provide readers with a more comprehensive understanding of management's perspective on the Company's operating results and performance.

A reconciliation of each non-GAAP financial measure referred to in this earnings release is provided above.

Adjusted NOI

Adjusted NOI is an important measure in evaluating the operating performance of the Company's real estate properties and is a key input in determining the fair value of the Company's properties. Adjusted NOI represents NOI (an IFRS measure) adjusted to exclude the impact of realty taxes accounted for under IFRIC 21 as noted below.

NOI includes the impact of realty taxes accounted for under the International Financial Reporting Interpretations Committee ("IFRIC") Interpretation 21, Levies ("IFRIC 21"). IFRIC 21 states that an entity recognizes a levy liability in accordance with the relevant legislation. The obligating event for realty taxes for the U.S. municipalities in which the REIT operates is ownership of the property on January 1 of each year for which the tax is imposed and, as a result, the REIT records the entire annual realty tax expense for its U.S. properties on January 1, except for U.S. properties acquired during the year in which the realty taxes are not recorded in the year of acquisition. Adjusted NOI records realty taxes for all properties on a pro rata basis over the entire fiscal year.

Funds From Operations and Normalized FFO

FFO (and FFO per common share) is a non-GAAP financial measure widely used as a real estate industry standard that supplement net income (loss) and evaluates operating performance but is not indicative of funds available to meet the Company's cash requirements. FFO can assist with comparisons of the operating performance of the Company's real estate between periods and relative to other real estate entities. FFO is computed in accordance with the current definition of the Real Property Association of Canada ("REALPAC") and is defined as net income (loss) attributable to common shareholders adjusted for: (i) deferred income taxes, (ii) unrealized changes in the fair value of real estate properties, (iii) realty taxes accounted for under IFRIC 21, (iv) internal leasing costs, (v) gains/losses from the sale of real estate or hotel property (including income tax on the sale of real estate or hotel property), (vi) transaction costs expensed as a result of a business combination, (vii) gains/losses on business combination, (viii) the non-controlling interest of Morguard North American Residential REIT, (ix) amortization of depreciable real estate assets (including right-of-use assets), * amortization of intangible assets, (xi) principal payments of lease liabilities, (xii) FFO adjustments for equity-accounted investments, (xiii) provision for (recovery of) impairment, (xiv) other fair value adjustments and non-cash items. The Company considers FFO to be a useful measure for reviewing its comparative operating and financial performance. FFO per common share is calculated as FFO divided by the weighted average number of common shares outstanding during the period.

Normalized FFO (and normalized FFO per common share) is computed as FFO excluding non-recurring items on a net of tax basis and other non-cash fair value adjustments. The Company believes it is useful to provide an analysis of Normalized FFO which excludes non-recurring items on a net of tax basis and other non-cash fair value adjustments excluded from REALPAC's definition of FFO described above.

Non-Consolidated Indebtedness to Gross Book Value Ratio

Non-consolidated indebtedness to gross book value ratio is a compliance measure and establishes the limit for financial leverage of the Company on a Non-Consolidated Basis. Non-consolidated indebtedness to gross book value ratio is presented in this earnings release because management considers this non-GAAP measure to be an important compliance measure of the Company's financial position.

Non-consolidated gross book value is a measure of the value of the Company's assets and is calculated as total assets less right-of-use assets accounted for under IFRS 16, Leases.

Non-consolidated indebtedness is defined as the sum of the current and non-current portion of: (i) mortgages payable, (ii) Unsecured Debentures, (iii) convertible debentures, (iv) bank indebtedness, (v) loans payable, and (vi) outstanding letters of credit.

The Company's unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024, 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.sedarplus.ca.

About Morguard Corporation

Morguard Corporation is a real estate company, with total assets owned and under management valued at $17.6 billion. As at August 7, 2024, Morguard owns a diversified portfolio of 159 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,798 residential suites, approximately 16.8 million square feet of commercial leasable space and 472 hotel rooms. Morguard also currently owns a 65.3% interest in Morguard Real Estate Investment Trust and a 46.5% 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

For further information: For further information, please contact: Morguard Corporation: K. Rai Sahi, Chief Executive Officer, T 905-281-3800; Angela Sahi, President, Chief Operating Officer, T 905-281-3800; Paul Miatello, Chief Financial Officer, Senior Vice President, T 905-281-3800