Photo: Morguard (2024 archive)
Morguard’s reported quarterly profit more than doubled, but the cash-oriented measure investors use to judge its property business barely moved. The difference matters: a higher valuation on paper is not the same as more rent left over after expenses.
The Canadian real estate company reported November 4 that third-quarter net income rose to C$96.4 million from C$43.9 million a year earlier. Noncash valuation gains were the main reason for the increase, alongside higher management and advisory fees.
Normalized funds from operations, or FFO, was C$55.5 million, essentially unchanged from a year earlier. Per share, it was C$5.20 against C$5.18. All amounts in this article are Canadian dollars.
Property income tells a quieter story
Adjusted net operating income fell 2.6% to C$137.2 million. Morguard cited lower one-time lease cancellation fees, lower recovery of operating costs, higher retail vacancy and the sale of an Ottawa property, partly offset by currency changes.
Comparative property income, which focuses on properties held across both periods and removes certain other effects, edged up 0.3% to C$136.8 million. The combination shows why the headline profit alone does not describe how the buildings performed.
FFO, normalized FFO and adjusted and comparative property income are supplemental non-GAAP measures, not substitutes for IFRS net income or a statement of cash flow. Morguard cautions that similarly named measures at other companies may not be comparable.
A C$1.1 billion investment has not closed
Morguard also updated its planned joint investment with Morguard North American Residential REIT in a Canadian apartment portfolio owned by TD Asset Management. The transaction involves an approximately 26% undivided interest in 91 properties containing 12,302 suites, at a combined gross purchase price of about C$1.1 billion before closing costs.
That is a purchase of interests in the portfolio, not sole ownership of every apartment. Morguard says due diligence is complete and purchaser conditions have been waived, but closing still requires Canada Mortgage and Housing Corporation and lender approvals.
The financing plan combines cash, assumed mortgages, about C$225 million in vendor financing and short-term borrowing. Morguard reported a C$20 million nonrefundable deposit paid by September 30.
What investors are watching
Morguard ended the quarter with C$723.5 million in cash and available credit facilities. Its board declared a C$0.20 quarterly dividend per common share, payable December 31 to holders of record December 15.
The practical tests ahead are whether property income improves and whether the apartment investment gets its remaining approvals. The higher reported profit does not, by itself, establish either outcome.
JBizNews Desk | Mississauga, Ontario
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