Morguard Corporation Announces 2020 Third Quarter Results, Regular Eligible Dividend and Provides Operational Update Related to COVID-19
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 | 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
