MISSISSAUGA, ON, Nov. 5, 2020 /CNW/ - Morguard Corporation
("Morguard" or the "Company") (TSX: MRC) today announced its
financial results for the three and nine months ended September 30, 2020, including a brief operational
and liquidity update as we continue to focus on managing through
the COVID-19 pandemic.
Reporting Highlights
- Total revenue from real estate properties increased by
$1.4 million, or 0.7% to $216.7 million for the three months ended
September 30, 2020, compared to
$215.3 million for the same period in
2019.
- Total revenue from hotel properties decreased by $43.7 million, or 66.8% to $21.8 million for the three months ended
September 30, 2020, compared to
$65.5 million for the same period in
2019.
- Net operating income ("NOI") decreased by $19.8 million, or 13.2%, to $130.3 million for the three months ended
September 30, 2020, compared to
$150.1 million for the same period in
2019, primarily due to lower NOI from the hotel portfolio and
higher bad debt expense.
- Net loss increased by $35.3
million to $37.6 million for
the three months ended September 30,
2020, compared to $2.3 million
for the same period in 2019, primarily due to an increase in net
fair value loss of $72.2 million and
a decrease in NOI of $19.8 million,
partially offset by a decrease in equity loss from investments of
$25.8 million, a decrease in
provision for impairment of $11.5
million and an increase in deferred income tax recovery of
$11.8 million.
- Normalized FFO decreased by $17.8
million, or 28.9% to $43.7
million for the three months ended September 30, 2020, compared to $61.5 million for the same period in 2019.
Operational and Balance Sheet Highlights
- During the three months ended September
30, 2020, the Company issued $175
million of 4.402% Series G senior unsecured debentures due
on September 28, 2023.
- During the three months ended September
30, 2020, the Company financed new and existing mortgages
for additional net proceeds of $70.7
million and paid down loans payable and bank indebtedness in
the amount of $144.1 million.
- Rent collections from all asset classes have been strong with
92.2% collected during the third quarter of 2020, compared to an
86.1% collection rate for the second quarter of 2020.
- As at September 30, 2020, the
Company's total assets were $11.5
billion compared to $11.7
billion as at December 31,
2019.
- During the year, occupancy was 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.
Financial Highlights
|
Three months
ended
September
30
|
Nine months
ended
September
30
|
(in thousands of
dollars, except per common share)
|
2020
|
2019
|
2020
|
2019
|
Revenue from real
estate properties
|
$216,706
|
$215,253
|
$663,449
|
$651,186
|
Revenue from hotel
properties
|
21,780
|
65,525
|
78,416
|
184,351
|
Management and
advisory fees
|
9,342
|
13,910
|
31,620
|
37,991
|
Interest and other
income
|
3,641
|
4,233
|
11,199
|
15,157
|
Total
revenue
|
$251,469
|
$298,921
|
$784,684
|
$888,685
|
|
|
|
|
|
Revenue from real
estate properties
|
$216,706
|
$215,253
|
$663,449
|
$651,186
|
Revenue from hotel
properties
|
21,780
|
65,525
|
78,416
|
184,351
|
Property operating
expenses
|
(91,373)
|
(83,538)
|
(307,550)
|
(290,907)
|
Hotel operating
expenses
|
(16,845)
|
(47,181)
|
(70,272)
|
(139,852)
|
Net operating
income
|
$130,268
|
$150,059
|
$364,043
|
$404,778
|
|
|
|
|
|
Net income (loss)
attributable to common shareholders
|
($4,606)
|
($1,180)
|
($36,590)
|
$102,028
|
Net income (loss) per
common share – basic and diluted
|
($0.42)
|
($0.10)
|
($3.26)
|
$9.04
|
|
|
|
|
|
Funds from
operations
|
$43,104
|
$70,903
|
$98,978
|
$186,780
|
FFO per common share
– basic and diluted
|
$3.84
|
$6.29
|
$8.81
|
$16.55
|
|
|
|
|
|
Normalized funds from
operations
|
$43,756
|
$61,541
|
$136,772
|
$168,773
|
Normalized FFO per
common share – basic and diluted
|
$3.91
|
$5.45
|
$12.17
|
$14.95
|
OPERATIONAL AND LIQUIDITY UPDATE
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. 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.
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. We are actively
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.
2020 Rental Collections
As at November 5, 2020, the Company's collection of
rental revenues during 2020 is summarized below by asset class:
|
|
|
|
|
|
|
|
Asset
Class
|
|
|
|
|
|
|
%
Rental
|
|
Q1
|
Q2
|
July
|
August
|
September
|
Revenue
|
Residential
|
|
99.8%
|
99.2%
|
98.5%
|
97.9%
|
97.3%
|
45.0%
|
Retail
|
|
98.3%
|
61.4%
|
77.0%
|
82.1%
|
81.2%
|
26.8%
|
Office
|
|
99.9%
|
92.8%
|
96.6%
|
95.7%
|
95.9%
|
27.0%
|
Industrial
|
|
100.0%
|
93.5%
|
96.9%
|
96.9%
|
96.9%
|
1.2%
|
Total
|
|
99.4%
|
86.1%
|
91.7%
|
92.7%
|
92.3%
|
100.0%
|
Liquidity
The Company has liquidity of approximately
$688 million comprised of
$230 million in cash and $458 million available under its revolving credit
facilities. In addition, the Company has approximately $852 million of unencumbered income producing and
hotel 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 the 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 $675.5
million of mortgages payable maturing during 2020 and 2021
having an aggregate loan-to-value ratio of 35% which management
expects to be able to refinance at similar or favorable terms. In
addition, the Company has $400
million of senior unsecured debentures maturing in
November 2020 and May 2021. On September 28,
2020, the Company issued $175
million of Series G unsecured debentures, the net proceeds
will be available to paydown the maturing senior unsecured
debentures in November 2020. The
Company expects to be able to issue new debt instruments and use
current liquidity sufficient to permit the repayment of its 2020
and 2021 maturities.
The duration and impact of the COVID-19 pandemic is unknown at
this time. It is 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.
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 positions us well
against any potential challenges. We will continue to carry on with
this approach.
CECRA Program
The Government of Canada has partnered with the provincial
governments to deliver the Canada
Emergency Commercial Rent Assistance ("CECRA") program. The program
is intended to provide relief for small businesses and commercial
landlords who are experiencing financial difficulties during the
COVID-19 Pandemic.
The Company decided that it was important to participate in the
program and actively worked with 634 tenants to finalize
applications under the CECRA program, and as at November 5, 2020, the Company has received all
scheduled government funding.
|
Landlord
|
Government
|
CECRA
|
Tenant
|
For the nine
months ended September 30, 2020
|
Portion
|
Portion
|
Total
|
Enrollment
|
Retail
|
$4,004
|
$8,008
|
$12,012
|
6.8%
|
Office
|
882
|
1,764
|
2,646
|
1.5%
|
Industrial
|
164
|
328
|
492
|
6.0%
|
Total
|
$5,050
|
$10,100
|
$15,150
|
4.2%
|
Canadian Emergency Wage Subsidy
On April 11, 2020, the Canada Emergency Wage Subsidy ("CEWS") was
enacted, which provides a subsidy for each employee employed
between March 15 to June 6, 2020.
Subsequently, the Government of Canada extended CEWS to December 19, 2020 and announced its intention to
further extend the program until June
2021.
The Company and associated related party group under common
control with the Company, including Morguard's parent company,
Paros Enterprises Limited, have satisfied certain eligibility
criteria, including (among others) a significant decline in revenue
due to the temporary closures of non-essential services. The
Company will continue to assess its eligibility to December 19, 2020. For the three and nine months
ended September 30, 2020, the Company
recorded $7.5 million and
$20.9 million, respectively as a
deduction of the related expense.
Net Loss
Net loss for the three months ended September 30, 2020, was $37.6 million compared to $2.3 million in 2019. The increase in net loss of
$35.3 million for the three months
ended September 30, 2020, was
primarily due to the following:
- A decrease in net operating income of $19.8 million, primarily due to lower NOI from
the hotel portfolio due to hotel closures and reduced occupancies.
In addition, lower NOI was mainly caused by higher bad debt expense
amounting to $7.6 million
($5.3 million of which is from the
retail segment), partially offset by an increase in multi-suite
residential NOI and from the net impact of acquisitions and
dispositions. Included in NOI is a provision for CEWS which
partially offset the overall decline in NOI;
- A decrease in management and advisory fees of $4.6 million, mainly due to lower property
management, asset management, leasing and disposition fees;
- A decrease in property management and corporate expense of
$10.1 million, primarily due to a
provision for CEWS and a decrease in non-cash compensation expense
related to the Company's Stock Appreciation Rights ("SARs")
plan;
- A decrease in provision for impairment of $11.5 million;
- An increase in non-cash net fair value loss of $72.2 million, mainly due to an increase in net
fair value loss recorded on the Company's real estate properties
and a lower fair value gain on the Company's investment in
marketable securities, partially offset by a decrease in the fair
value loss on Morguard Residential REIT Units;
- A decrease in equity loss from investments of $25.8 million, primarily due to a fair value loss
recorded on the Company's investment in Marquee at Block 37 in
2019; and
- An increase in income tax recovery (current and deferred) of
$14.4 million.
Net Operating Income
NOI decreased by $19.8 million, or
13.2%, during the three months ended September 30, 2020, to $130.3 million, compared to $150.1 million generated in 2019, and is further
analyzed by asset type below.
|
Three months
ended
September 30
|
Nine months
ended
September
30
|
(in thousands of
dollars)
|
2020
|
2019
|
2020
|
2019
|
Multi-suite
residential
|
$54,551
|
$52,343
|
$175,300
|
$155,692
|
Retail
|
26,714
|
34,690
|
87,615
|
106,546
|
Office
|
31,921
|
33,834
|
98,783
|
101,418
|
Industrial
|
1,711
|
2,171
|
5,283
|
6,775
|
Hotels
|
4,935
|
18,344
|
8,144
|
44,499
|
Adjusted
NOI
|
119,832
|
141,382
|
375,125
|
414,930
|
IFRIC 21 adjustment –
multi-suite residential
|
9,044
|
7,313
|
(9,711)
|
(8,762)
|
IFRIC 21 adjustment –
retail
|
1,392
|
1,364
|
(1,371)
|
(1,390)
|
NOI
|
$130,268
|
$150,059
|
$364,043
|
$404,778
|
Adjusted NOI for the three months ended September 30, 2020, decreased by $21.6 million, or 15.2% to $119.8 million, compared to $141.4 million in 2019, primarily due to the
following:
- A decrease in the Canadian residential portfolio of
$1.0 million, primarily resulting
from higher operating expenses, partially offset by an increase in
rental revenue from higher average monthly rent, net of increased
vacancy and concessions given to existing tenants during the
pandemic through August 2020;
- An increase in U.S. residential portfolio of US$2.2 million, primarily from an increase of
US$2.5 million due to the acquisition
of the remaining 51% interest in Marquee at Block 37, Chicago, Illinois, and consolidation of its
equity investment interest during the fourth quarter of 2019,
partially offset by higher operating expenses;
- A decrease in the retail portfolio of $8.0 million mainly in Canadian retail properties
resulting from an increase in bad debt expense of $5.3 million resulting from failed tenants and an
expected credit loss due to the economic impact of COVID-19, of
which $2.2 million is due to the 25%
landlord portion of the CECRA program, as well as a decrease from
lower recoveries and lower basic rent of $2.9 million;
- A decrease in the office portfolio of $1.9 million, primarily due to an increase in bad
debt expense of $1.6 million, in part
from the 25% landlord portion of CECRA program and the economic
impact of COVID-19, as well as lower basic rent, occupancy, parking
revenue and a decrease of $1.7
million due to an increase in rental abatements, partially
offset by the acquisition of two properties during 2019, which
resulted in additional NOI of $1.8
million;
- A decrease in the hotel portfolio of $13.4 million, primarily due to a decrease of
$18.6 million due to hotel closures,
lower occupancy and lower revenue per available room due to current
economic conditions experienced in all provinces as a result of the
COVID-19 pandemic, partially offset by an increase of $5.1 million due to a provision for CEWS; and
- An increase of $0.8 million due
to the change in the U.S. dollar foreign exchange rate.
Funds From Operations
For the three months ended September 30,
2020, the Company recorded FFO of $43.1 million ($3.84 per common share), compared to $70.9 million ($6.29 per common share) in 2019. The decrease in
FFO of $27.8 million is mainly due to
the following:
- A decrease in Adjusted NOI of $21.6
million, primarily due to lower Adjusted NOI from the hotel
portfolio due to hotel closures and reduced occupancies from the
impact of COVID-19. In addition, lower Adjusted NOI from the
retail, office and industrial portfolio was mainly due to higher
bad debt expense, which was partially offset by higher Adjusted NOI
from the residential portfolio, the net impact of acquisitions and
dispositions and a provision for CEWS;
- A decrease in management and advisory fees of $4.6 million, primarily due to lower property
management, asset management, leasing and disposition fees earned
compared to 2019;
- An increase in interest expense of $1.2
million, mainly due to higher interest on Unsecured
Debentures, partially offset by lower interest on bank
indebtedness;
- A decrease in property management and corporate expenses of
$10.1 million, primarily due to a
provision for CEWS and a decrease in non-cash compensation expense
related to the Company's SARs plan;
- A decrease in current income taxes of $2.6 million;
- A decrease in the non-controlling interests' share of FFO of
$5.7 million; and
- A decrease in unrealized changes in the fair value of the
Company's financial instruments of $17.2
million.
The change in foreign exchange rate had a positive impact on FFO
of $0.1 million ($0.01 per common share).
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 fair value adjustments.
Normalized FFO for the three months ended September 30, 2020, was $43.8 million, or $3.91 per common share, versus $61.5 million, or $5.45 per common share, for the same period in
2019, which represents a decrease of $17.8
million, or 28.9%.
Fourth Quarter Dividend
The Board of Directors of Morguard Corporation announced that
the fourth quarterly, eligible dividend of 2020 in the amount of
$0.15 per common share will be paid
on December 31, 2020, to shareholders
of record at the close of business on December 15, 2020.
The Company's unaudited condensed consolidated financial
statements for the three months ended September 30, 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
September 30, 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 $19.4
billion. As at November 5,
2020, Morguard owns a diversified portfolio of 202
multi-suite residential, retail, office, industrial and hotel
properties comprised of 17,638 residential suites, approximately
16.9 million square feet of commercial leasable space and 5,517
hotel rooms. Morguard also currently owns a 59.9% 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