MISSISSAUGA, ON, Nov. 6, 2024 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX: MRC) is pleased to announce its financial results for the three and nine months ended September 30, 2024.
Operational and Balance Sheet Highlights
The Company ended the third quarter in a strong liquidity position with $585.0 million of cash and available credit facilities, and a $1.2 billion pool of unencumbered properties and other investments.
Utilizing proceeds primarily 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 37.6% at
September 30, 2024, compared to 43.2% at December 31, 2023.
Morguard officially launched the construction of its new purpose-built rental community in the vibrant Port Credit area. The 431 suite development is projected to be complete in 2027, will be comprised of one
9-storey and two 8-storey mid-rise residential buildings.
As at September 30, 2024, the Company's total assets were $11.5 billion, compared to $11.6 billion at December 31, 2023.
Reporting Highlights
The Company has announced it will increase its annual cash dividend. This will bring the dividend to $0.80 per share on an annualized basis from the current level of $0.60 per share. The increase is expected to be effective for the fourth quarter dividend, payable in December 2024.
Total revenue from real estate properties increased by $2.7 million, or 1.1%, to $253.4 million for the three months ended September 30, 2024, compared to $250.7 million for the same period in 2023.
Total revenue from hotel properties decreased by $39.4 million, or 82.3%, to $8.5 million for the three months ended September 30, 2024, compared to $47.9 million for the same period in 2023, primarily due to the Hotel Portfolio Disposition.
Comparative NOI increased by $3.7 million, or 2.8%, to $138.4 million for the three months ended September 30, 2024, compared to $134.7 million for the same period in 2023.
Adjusted NOI(1) decreased by $12.4 million, or 8.2%, to $139.3 million for the three months ended September 30, 2024, compared to $151.7 million for the same period in 2023, primarily due to the Hotel Portfolio Disposition.
Normalized funds from operations(1) ("Normalized FFO") was $53.7 million, or $4.97 per common share, for the three months ended September 30, 2024. This represents a decrease of $10.7 million, or 16.5%, compared to $64.4 million, or $5.95 per common share for the same period in 2023.
Net income increased by $17.4 million to $7.9 million for the three months ended September 30, 2024, compared to a net loss of $9.5 million for the same period in 2023, primarily due to a decrease in non-cash fair value loss due to an increase in fair value gain on real estate properties, partially offset by an increase in fair value loss on Morguard Residential REIT units, a decrease in net operating income and an increase in deferred income taxes.
(1) Refer to Specified Financial Measures
Financial Highlights
Three months ended September 30
Nine months ended
September 30
(in thousands of dollars)
2024
2023
2024
2023
Revenue from real estate properties
$253,389
$250,640
$765,336
$743,558
Revenue from hotel properties
8,462
47,895
27,725
123,203
Management and advisory fees
9,055
9,618
29,234
30,752
Interest and other income
5,967
4,208
14,775
13,647
Total revenue
$276,873
$312,361
$837,070
$911,160
Revenue from real estate properties
$253,389
$250,640
$765,336
$743,558
Revenue from hotel properties
8,462
47,895
27,725
123,203
Property operating expenses
(103,329)
(102,648)
(366,314)
(356,128)
Hotel operating expenses
(5,283)
(30,095)
(20,881)
(84,494)
Net operating income ("NOI")
$153,239
$165,792
$405,866
$426,139
Net income attributable to common shareholders
$498
$5,494
$184,802
$60,622
Net income per common share – basic and diluted
$0.05
$0.51
$17.09
$5.54
Funds from operations(1)
$63,040
$60,163
$142,364
$148,166
FFO per common share – basic and diluted(1)
$5.83
$5.56
$13.17
$13.55
Normalized funds from operations(1)
$53,738
$64,394
$157,584
$176,833
Normalized FFO per common share – basic and diluted(1)
$4.97
$5.95
$14.57
$16.17
(1) Refer to Specified Financial Measures.
Total revenue during the three months ended September 30, 2024, decreased by $35.5 million to $276.9 million compared to $312.4 million in 2023, primarily due to a decrease in revenue from hotel properties in the amount of $39.4 million, due to the Hotel Portfolio Disposition, partially offset by an increase in revenue from real estate properties in the amount of $2.7 million, primarily due to higher AMR within the multi-suite residential segment.
Net income for the three months ended September 30, 2024 was $7.9 million, compared to a net loss of $9.5 million in 2023. The increase in net income of $17.4 million for the three months ended September 30, 2024, was primarily due to the following:
A decrease in net operating income of $12.6 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 $3.4 million, mainly due to the Hotel Portfolio Disposition;
A decrease in non-cash net fair value loss of $80.8 million, mainly due to an increase in fair value gain on real estate properties, partially offset by an increase in fair value loss on Morguard Residential REIT units;
A decrease due to a recovery of impairment on hotel properties of $11.0 million recorded in 2023;
An increase in income tax expense (current and deferred) of $44.9 million, mainly due to a higher fair value gain recorded on the Company's Canadian and U.S. properties.
Total revenue during the nine months ended September 30, 2024, decreased by $74.1 million to $837.1 million compared to $911.2 million in 2023, primarily due to a decrease in revenue from hotel properties in the amount of $95.5 million, due to the Hotel Portfolio Disposition, partially offset by an increase in revenue from real estate properties in the amount of $21.8 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 nine months ended September 30, 2024 was $180.1 million, compared to $55.1 million in 2023. The increase in net income of $125.0 million for the nine months ended September 30, 2024, was primarily due to the following:
A decrease in net operating income of $20.3 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 $11.5 million, mainly due to the Hotel Portfolio Disposition;
An increase in gain on sale of hotel properties of $150.6 million, due to the Hotel Portfolio Disposition;
A decrease due to a recovery of impairment on hotel properties of $11.0 million recorded in 2023;
A decrease in non-cash net fair value loss of $18.5 million, mainly due to an increase in fair value gain on real estate properties, partially offset by an increase in fair value loss on Morguard Residential REIT units;
An increase in income tax expense (current and deferred) of $25.2 million, mainly due to a higher fair value gain recorded on the Company's Canadian and U.S. properties.
Average Occupancy Levels
During the third 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
Sep.
2024
Jun.
2024
Mar.
2023
Dec.
2023
Sep.
2023
Multi-suite residential
17,798
94.6 %
95.3 %
95.6 %
96.1 %
96.1 %
Retail
7,754,500 (1)
93.2 %
93.6 %
93.8 %
94.0 %
93.5 %
Office(2)
8,595,300
88.9 %
88.3 %
87.9 %
88.4 %
88.1 %
(1) Retail occupancy has been adjusted to exclude development space of 379,572 square feet of GLA.
(2) Office includes industrial properties with 1,046,000 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 September 30
Nine months ended September 30
(in thousands of dollars)
2024
2023
2024
2023
Multi-suite residential
$69,699
$68,557
$213,201
$203,569
Retail
32,958
30,855
97,310
95,665
Office(1)
33,511
34,519
102,348
101,144
Hotel
3,179
17,800
6,844
38,709
Adjusted NOI
139,347
151,731
419,703
439,087
IFRIC 21 adjustment - multi-suite residential
12,268
12,242
(12,308)
(11,319)
IFRIC 21 adjustment - retail
1,624
1,819
(1,529)
(1,629)
NOI
$153,239
$165,792
$405,866
$426,139
(1) Includes industrial properties with NOI for the three and nine months ended September 30, 2024 of $2,793 (2023 - $2,362) and $7,909 (2023 - $5,326), respectively.
For the three and nine months ended September 30, 2024, Adjusted NOI decreased by $12.4 million and $19.4 million, respectively, primarily due to the Hotel Portfolio Disposition, partially offset by an increase in AMR within the multi-suite residential segment and from the net impact of acquisition and disposition of properties.
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 September 30
Nine months ended
September 30
(in thousands of dollars)
2024
2023
2024
2023
Multi-suite residential
$69,699
$68,557
$213,201
$203,569
Retail
32,958
30,855
97,310
95,665
Office
33,511
34,519
102,348
101,144
Hotel
3,179
17,800
6,844
38,709
Adjusted NOI
Other Revenue
139,347
151,731
419,703
439,087
Management and advisory fees
9,055
9,618
29,234
30,752
Interest and other income
5,967
4,208
14,775
13,647
Equity-accounted FFO
568
1,449
2,216
4,518
15,590
15,275
46,225
48,917
Expenses and Other
Interest
(64,258)
(66,830)
(192,374)
(194,533)
Principal repayment of lease liabilities
(244)
(405)
(1,027)
(1,229)
Property management and corporate
(21,394)
(20,773)
(66,334)
(65,254)
Internal leasing costs
1,075
1,320
3,212
3,394
Amortization of capital assets
(277)
(318)
(867)
(979)
Current income taxes
(2,775)
(2,280)
(7,595)
(4,371)
Non-controlling interests' share of FFO
(13,665)
(12,468)
(41,234)
(44,511)
Unrealized changes in the fair value of financial instruments
9,890
(5,116)
(17,016)
(31,566)
Other income (expense)
(249)
27
(329)
(789)
FFO
$63,040
$60,163
$142,364
$148,166
FFO per common share amounts – basic and diluted
$5.83
$5.56
$13.17
$13.55
Weighted average number of common shares outstanding (in thousands):
Basic and diluted
10,813
10,813
10,813
10,933
Three months ended September 30
Nine months ended September 30
(in thousands of dollars)
2024
2023
2024
2023
FFO (from above)
$63,040
$60,163
$142,364
$148,166
Add/(deduct):
Unrealized changes in the fair value of financial instruments
(9,890)
5,116
17,016
31,566
SARs plan increase (decrease) in compensation expense
800
(57)
1,110
(866)
Lease cancellation fee and other
(254)
(1,020)
(3,690)
(2,476)
Tax effect of above adjustments
42
192
784
443
Normalized FFO
$53,738
$64,394
$157,584
$176,833
Per common share amounts – basic and diluted
$4.97
$5.95
$14.57
$16.17
Fourth Quarter Dividend
The Board of Directors of Morguard Corporation announced that the fourth quarterly, eligible dividend of 2024 in the amount of $0.20 per common share will be paid on December 31, 2024, to shareholders of record at the close of business on December 16, 2024.
Subsequent Events
On October 7, 2024, the Company acquired a 20% interest in an office building located in Vancouver, British Columbia for a gross purchase price of $99.0 million, excluding closing costs, and assumed mortgages payable of $35.7 million at a contractual interest rate of 3.40%, maturing on July 22, 2025.
The Company entered into agreements, subject to Canada Mortgage and Housing Corporation ("CMHC") approval, for the CMHC-insured refinancing of two multi-suite residential properties located in Mississauga, Ontario, providing gross proceeds of up to $109.3 million. The Company expects to close the refinancing during the fourth quarter of 2024. The maturing mortgages amount to $49.5 million, and have a weighted average interest rate of 3.15%.
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 nine months ended September 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 nine months ended September 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 $18.5 billion. As at November 6, 2024, Morguard owns a diversified portfolio of 157 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,798 residential suites, approximately 16.9 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 47.0% 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.
