Morguard Corporation Announces 2018 First Quarter Results and Regular Eligible Dividend

MISSISSAUGA, ON, May 8, 2018 /CNW/ - Morguard Corporation ("Morguard" or the "Company") (TSX:MRC) today announced its financial results for the three months ended March 31, 2018.

Reporting Highlights

• Total revenue increased by $3.9 million to $274.8 million for the three months ended March 31, 2018, compared to $270.9 million for the same period in 2017.
• Net operating income ("NOI") decreased by $1.3 million, or 1.3%, to $99.8 million for the three months ended March 31, 2018, compared to $101.1 million for the same period in 2017.
• Fair value gain on real estate properties increased by $16.9 million to $65.3 million for the three months ended March 31, 2018, compared to $48.4 million for the same period in 2017.
• Net income increased by $92.6 million to $125.0 million for the three months ended March 31, 2018, compared to $32.4 million for the same period in 2017.
• Funds from operations ("FFO") increased by $2.3 million to $49.9 million, for the three months ended March 31, 2018, compared to $47.6 million, for the same period in 2017, representing a 4.9% increase.
• FFO per share increased by $0.33 per share to $4.32 per share, for the three months ended March 31, 2018 compared to $3.99 per share, for the same period in 2017, representing a 8.3% increase.

Operational and Balance Sheet Highlights:

• On February 13, 2018, Morguard Residential REIT issued $75.0 million principal amount of 4.50% convertible unsecured subordinated debentures maturing on March 31, 2023. On February 21, 2018, an additional principal amount of $10.5 million was issued pursuant to the exercise of the over-allotment option.
• On February 26, 2018, Morguard Residential REIT redeemed the remaining $60.0 million of its outstanding 4.65% convertible unsecured subordinated debentures in advance of their March 30, 2018 maturity date.
• Shareholders' equity per common share (excluding non-controlling interest) increased to $277.24 compared to $260.32 as at December 31, 2017.
• During the three months ended March 31, 2018, 384,993 common shares were repurchased through the Company's NCIB for cash consideration of $69.1 million.

Acquisitions Completed During 2018

The following table presents a summary of the company's acquisitions totalling $95.1 million during the three months ended March 31, 2018.

1100 and 1101 Polytek Street, a two-building, small-bay industrial portfolio in Ottawa, Ontario encompass 243,000 square feet on 15.5 acres and was constructed in 2010 and 2015, with minimal capital expenditures forecast for the near future. The recent construction offers best-in-class features including clear heights of 28 feet and flexible unit configuration. The acquisition increases Morguard's footprint in Ottawa, which has been amongst the strongest and most consistent real estate markets in Canada. In the Ottawa region, Morguard currently owns and/or manages approximately 4.8 million square feet of property, which allows for management synergies and reduced operating costs.

5895 Explorer Drive is a 128,000 square foot class A office building located in the Airport Corporate Centre in Mississauga, Ontario. The building is fully occupied by Federal Express Canada ("FedEx") with a current lease term that expires in May 2025. The building was purpose built for FedEx with large 42,000 square feet floorplates and modern office buildouts connected by an open staircase in the full-height atrium. The building backs onto a ravine on a sizeable 12.5 acres plot of land accommodating 621 parking stalls. Excess density at this property also allows for the potential to further develop the site and offers FedEx a chance to expand their square footage.

Financial Highlights

Net Income

Net income for the three months ended March 31, 2018, was $125.0 million compared to net income of $32.4 million in 2017. The increase in net income of $92.6 million for the three months ended March 31, 2018, was primarily due to the following:

• A decrease in net operating income of $1.3 million;
• A decrease in management and advisory fees of $4.5 million;
• An increase in the interest expense of $3.7 million;
• An increase in property management and corporate expense of $0.6 million;
• An increase in amortization of capital assets and other of $0.8 million;
• An increase in non-cash net fair value gain of $79.0 million;
• An increase in non-cash equity income of $9.4 million;
• An increase in other income of $0.5 million; and
• A decrease in income taxes (current and deferred) of $15.3 million.

Net Operating Income

NOI decreased by $1.3 million, or 1.3%, during the three months ended March 31, 2018, to $99.8 million, compared to $101.1 million generated in 2017, and is further analyzed by asset type below.

The decrease in NOI of $1.3 million is due to an increase in the IFRIC 21 adjustment of $4.1 million and the change in Adjusted NOI described below.

Adjusted NOI for the three months ended March 31, 2018, increased by $2.7 million to $123.3 million compared to $120.6 million in 2017 primarily due to the following:

• An increase in the Canadian residential portfolio of $1.5 million primarily from rental rate growth, improved occupancy and lower operating expenses;
• An increase in NOI of US$2.5 million primarily due to the acquisition of three residential properties in the U.S. during the third quarter of 2017 of US$3.9 million, partially offset by a decrease of US$1.4 million due to sale of four residential properties located in Mobile, Alabama, on July 12, 2017;
• A decrease in the U.S. residential portfolio of US$0.2 million primarily due to an increase in vacancy and operating expenses at a property located in Chicago, Illinois;
• A decrease of $0.3 million in Canadian retail properties due to increased vacancy, lower base rate, higher non-recoverable operating expenses and lower recoveries primarily at five properties of $1.6 million which was partially offset by an increase in lease cancellation fee of $0.5 million and an increase of $0.8 million due to increased additional rental income from new tenants and lower non-recoverable operating costs;
• A decrease in U.S. retail properties of US$0.3 million primarily resulting from a decrease at two retail properties of US$0.6 million due to loss of tenants partially offset by an increase of US$0.2 million due to increased revenue from new tenants at one enclosed mall in Louisiana;
• A decrease in the office portfolio of $1.0 million primarily due to increased vacancies and lower recoveries of $1.5 million, a lease cancellation fees of $1.4 million received in 2017 partly offset by acquisition of three properties during third quarter of 2017 and one property acquired during the first quarter of 2018, contributing $1.9 million;
• An increase in the industrial portfolio by $0.7 million is due to acquisition of a property during the quarter ended March 31, 2018 and improved occupancy within the industrial portfolio;
• An increase in the hotel portfolio by $0.7 million is mainly due to stronger average room rates, improved occupancy and reduced costs partly offset by the sale of a hotel property in the third quarter of 2017; and
• A decrease of $0.9 million due to the change in the U.S. dollar foreign exchange rate.

Funds From Operations

For the three months ended March 31, 2018, the Company recorded FFO of $49.9 million ($4.32 per common share), compared to $47.6 million ($3.99 per common share) in 2017. The increase in FFO of $2.3 million is mainly due to the following:

• Higher Adjusted NOI of $2.7 million, primarily due to the acquisition of properties;
• A decrease in management and advisory fees of $4.5 million primarily due to lower disposition fees earned;
• An increase in equity-accounted FFO of $4.8 million primarily due to an increase in operating income from the Company's two investments, Marquee at Block 37 and Sunset & Gordon;
• An increase in interest expense of $3.7 million, primarily due to higher interest on unsecured debentures and on the financing of acquisitions;
• Higher property management and corporate expense of $0.6 million;
• A decrease in internal leasing costs of $1.1 million;
• An increase in amortization of capital assets of $0.8 million;
• A decrease in current taxes of $4.7 million; and
• An unrealized fair value gain on financial instruments of $1.3 million.

The change in foreign exchange rates had a negative impact on FFO of $0.4 million ($0.03 per common share).

Normalized FFO for the three months ended March 31, 2018, was $49.5 million, or $4.29 per common share, versus $46.8 million, or $3.92 per common share, for the same period in 2017, which represents an increase of $2.7 million, or 5.9%. Normalized FFO is computed as FFO adjusted for the impact of non-recurring items net of tax.

Land Lease Arbitration Settlement

The Company is a lessee associated with the land underlying a mixed-use property located in Toronto, Ontario. On April 27, 2018, the Company reached an agreement on the fair market value of the land for the period July 1, 2010 through June 30, 2030 that resulted in the annual land rent increasing from $2.8 million to $8.8 million The Company settled and paid an amount of $15.8 million for arrears of rent and interest from July 1, 2010 to April 30, 2018. In accordance with the Majority Decision, for the period from July 1, 2010 to March 31, 2018, the Company recorded annual land rent of $11.0 million and will therefore reverse $17.1 million (pre-tax) of land rent previously expensed.

Second Quarter Dividend

The Board of Directors of Morguard Corporation announced that the second quarterly, eligible dividend of 2018 in the amount of $0.15 per common share will be paid on June 29, 2018, to shareholders of record at the close of business on June 15, 2018.

The Company's unaudited condensed consolidated financial statements for the three months ended March 31, 2018, 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 condensed 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 March 31, 2018 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 $21.3 billion. Morguard owns a diversified portfolio of 210 multi-suite residential, retail, office, industrial and hotel properties comprised of 18,129 residential suites, approximately 16.6 million square feet of commercial leasable space and 5,557 hotel rooms. Morguard also currently owns a 56.0% interest in Morguard Real Estate Investment Trust ("Morguard REIT" or "MRT"), a 46.9% effective interest in Morguard North American Residential Real Estate Investment Trust ("Morguard Residential REIT" or "MRG") and a 58.3% effective interest in Temple Hotels Inc. ("Temple"). 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

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