morguard real estate investment trust second quarter results 2015

Transcription

MORGUARD REAL ESTATE
INVESTMENT TRUST
SECOND QUARTER RESULTS
2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
AND CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MORGUARD REAL ESTATE INVESTMENT TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS | JUNE 30, 2015
PART I
BASIS OF PRESENTATION
Financial data included in this Management’s Discussion and Analysis (“MD&A”) for the three and six months ended
June 30, 2015, includes material information up to August 5, 2015. Except as outlined below, financial data provided
has been prepared in accordance with International Financial Reporting Standards (“IFRS”) IAS 34, "Interim Financial
Reporting", as issued by the International Accounting Standards Board (“IASB”).
In this MD&A the discussion of the Morguard Real Estate Investment Trust’s (“the Trust”) operating results is based on
financial information developed using proportionate consolidation for all the Trust’s joint arrangements, including those
joint ventures accounted for using the equity method, as required by IFRS 11. Management believes that presenting
the operating and financial results of the Trust’s joint arrangements using proportionate consolidation provides more
useful information to both current and prospective investors to assist them with their understanding of the Trust’s
financial performance.
From time to time, the Trust will undertake to actively dispose of certain assets. In these circumstances management
has determined that the performance of ongoing operations is of greatest importance to its stakeholders. As a result,
in this MD&A the discussion of the Trust’s property performance for the purpose of some measures is focused on
income producing properties, which excludes properties held for sale.
The following discussion and analysis are intended to provide readers with an assessment of the performance of the
Trust over the three months, as well as its financial position and future prospects. This discussion should be read in
conjunction with the condensed consolidated financial statements and accompanying notes for the three months and
six months ended June 30, 2015. Historical results, including trends that might appear, should not be taken as
indicative of future operations or results. All dollar references, unless otherwise stated, are in thousands of Canadian
dollars, except per unit amounts.
PART X provides reconciliations between selected financial information from the Trust’s condensed consolidated
financial statements and the financial information used in this MD&A.
FORWARD-LOOKING DISCLAIMER
Certain information in this MD&A may constitute forward-looking statements that involve a number of risks and
uncertainties, including statements regarding the outlook for the Trust’s business results of operations. Forwardlooking statements use the words “believe,” “expect,” “anticipate,” “may,” “should,” “intend,” “estimate” and other
similar terms, which do not relate to historical matters. Such forward-looking statements involve known and unknown
risks and uncertainties and other factors that may cause the actual results to differ materially from those indicated.
Such factors include, but are not limited to, general economic conditions, the availability of new competitive supply of
commercial real estate that may become available either through construction or sublease, the Trust’s ability to
maintain occupancy and to lease or re-lease space on a timely basis at current or anticipated rates, tenant
bankruptcies, financial difficulties and defaults, changes in interest rates, changes in operating costs, the Trust’s ability
to obtain adequate insurance coverage at a reasonable cost and the availability of financing. The Trust believes that
the expectations reflected in forward-looking statements are based on reasonable assumptions; however, the Trust
can give no assurance that actual results will be consistent with these forward-looking statements. Except as required
by applicable law; the Trust disclaims any intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise. Readers should be cautioned not to place undue
reliance on the forward-looking statements.
MORGUARD.COM
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FINANCIAL MEASURES
The Trust uses supplemental measures such as net operating income (“NOI”), funds from operations (“FFO”) and
adjusted funds from operations (“AFFO”) to manage its financial performance. These measures are not defined by
IFRS and therefore should not be construed as substitutes to net income or cash flows from operating activities
calculated in accordance with IFRS. Furthermore, the Trust’s method of calculating these supplemental measures
may differ from other issuers’ methods and accordingly, may not be comparable to measures reported by other
issuers.
SUMMARY OF SELECTED QUARTERLY INFORMATION
The selected quarterly information highlights certain key metrics for the Trust, over the most recently completed eight
quarters. These measures from time to time may reflect fluctuations, caused by the underlying impact of seasonal or
non-recurring items, including acquisitions, divestitures, developments, leasing and maintenance expenditures, along
with any associated financing requirements. These items along with the ongoing financing activities for the existing
portfolio can dramatically affect the results.
ADDITIONAL INFORMATION
Additional information relating to the Trust, including the audited consolidated financial statements, Annual Information
Form (“AIF”), Material Change Reports and all other continuous disclosure documents required by securities
regulators, are filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and can be accessed
electronically at www.sedar.com.
REVIEW AND APPROVAL BY THE BOARD OF TRUSTEES
The Board of Trustees (“the Trustees”), upon the recommendation of its Audit Committee, approved the contents of
this MD&A on August 5, 2015.
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SUMMARY OF SELECTED QUARTERLY INFORMATION
TABLE 1
In thousands of dollars, except per-unit amounts
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
2015
2015
2014
2014
2014
2014
2013
2013
$70,701
$74,542
$77,456
$72,876
$73,925
$74,204
$73,122
$68,945
Net operating income
39,991
42,388
43,844
41,566
42,718
41,611
42,283
39,634
Income before fair value (losses)/gains, (loss)/gain on
sale of real estate properties and net income/(loss)
from equity-accounted investments
24,223
26,363
27,356
24,423
25,951
24,970
26,195
23,544
(45,295)
(11,167)
(894)
(5,283)
7,168
10,248
26,512
6,888
(15)
—
—
—
—
846
1,032
1,055
853
1,248
Revenue from real estate properties
Fair value (losses)/gains on real estate properties
Loss on sale of real estate properties
Net income/(loss) from equity-accounted investments
—
—
(22)
855
827
(2,953)
(20,217)
16,023
23,487
19,971
34,151
36,273
53,560
31,680
Funds from operations
25,050
27,174
28,154
25,300
27,022
26,040
27,144
24,329
Adjusted funds from operations
18,754
20,414
21,314
18,573
20,192
19,193
19,777
10,955
Basic
($0.33)
$0.26
$0.38
$0.32
$0.55
$0.58
$0.86
$0.50
Diluted
($0.33)
$0.25
$0.36
$0.31
$0.51
$0.54
$0.77
$0.46
Basic
$0.40
$0.44
$0.45
$0.41
$0.43
$0.42
$0.44
$0.38
Diluted 1
$0.40
$0.42
$0.44
$0.40
$0.42
$0.41
$0.42
$0.38
$0.30
$0.33
$0.35
$0.30
$0.32
$0.31
$0.32
$0.17
$0.30
$0.33
$0.34
$0.30
$0.32
$0.31
$0.32
$0.17
$0.24
$0.24
$0.24
$0.24
$0.24
$0.24
$0.24
$0.24
Net (loss)/income for the period
Amount presented on a per unit basis
Basic
Diluted
1
Cash distributions per unit
Payout ratio – Adjusted funds from operations 2
80.0%
72.7%
68.6%
80.0%
75.0%
77.4%
75.0%
141.2%
Weighted average number of unit as at
quarter-end (in thousands)
Basic
62,084
62,170
62,161
62,149
62,138
62,225
62,222
63,489
Diluted 1
68,181
68,267
68,258
68,246
68,235
68,322
68,319
69,586
Total assets
$2,940,362
$2,996,592
$3,016,496
$3,022,315
$3,021,787
$2,964,912
$2,942,799
$2,790,114
Total liabilities
$1,372,549
$1,388,025
$1,409,415
$1,424,282
$1,429,302
$1,390,444
$1,390,061
$1,269,460
Total equity
$1,567,813
$1,608,567
$1,607,081
$1,598,033
$1,592,485
$1,574,468
$1,552,738
$1,520,654
Retail
4,775
4,775
4,775
4,778
4,781
4,778
4,771
4,295
Office
3,516
3,525
3,526
3,520
3,482
3,471
3,466
3,468
Balance sheets
Gross leasable area as at quarter-end
(in thousands) 3
Other
338
338
338
338
336
338
338
366
Total
8,629
8,638
8,639
8,636
8,599
8,587
8,575
8,129
Occupancy as at the quarter-end date (%) 3
97%
98%
97%
96%
96%
95%
95%
100%
100%
99%
99%
97%
97%
96%
Retail
88%
96%
96%
96%
97%
Office
96%
96%
96%
96%
Other
99%
99%
99%
99%
Total
92%
96%
96%
96%
97%
1. Includes the dilutive impact of convertible debentures.
2. Cash distributions per unit as a percentage of adjusted funds from operations.
3. Excludes properties held for sale.
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PART II
BUSINESS OVERVIEW AND STRATEGY
The Trust’s primary business goal is to accumulate a Canadian portfolio of high-quality real estate assets and then
deliver the benefits of such real estate ownership to unitholders. The primary benefit is a reliable and, over time,
increasing cash distribution. The Trust manages distributions to ensure sufficient cash is retained to meet fixed
obligations while ensuring a stable cash flow to unitholders.
The Trust is an unincorporated “closed-end” Trust, governed by the laws of the Province of Ontario, created and
constituted pursuant to an amended and restated Declaration of Trust dated May 18, 2010 (“Declaration of Trust”).
The Trust was formed on June 18, 1997, and began operations on October 14, 1997. The Trust units are publicly
traded and listed on the Toronto Stock Exchange (“TSX”) under the symbol MRT.UN.
Morguard Corporation (“Morguard”) is the parent company of the trust, owning 47.42% of the outstanding units, as at
June 30, 2015. Morguard is a real estate company, which owns a diversified portfolio of multi-unit residential, retail,
hotel, office and industrial properties in both Canada and the United States.
SECOND QUARTER OVERVIEW
The Trust’s results for the second quarter reflect continuing activities around the re-leasing and repositioning of its
Target Canada Corporation ("Target") locations. During the second quarter the Trust successfully re-negotiated its
Target leases at Pine Centre, Southdale Shopping Centre and Aurora Centre. The replacement of the Target stores
with Lowes, Walmart and Canadian Tire significantly improve the tenant strength and will help to drive increased traffic
to these centres. The successful re-leasing of the Target space to Lowes at Pine Centre was especially beneficial to
the Trust, as this one location did not have a rental guarantee from Target U.S. At The Centre at Circle and 8th, the
Trust successfully acquired the Target lease to maintain control of the space in light of internal discussions to improve
the centre. At Cambridge Centre, Brandon Shoppers Mall and Prairie Mall, Target disclaimed these leases. The Trust
is currently executing on re-merchandising the Target units into multi-unit space; demanding higher rents and
improved returns on the funds to be re-invested. The space vacated by Target equates to the early termination of
379,500 square feet and as a result, the Trust’s retail occupancy has decreased to 88%. Adjusting for the vacant
Target space, the Trust's retail portfolio occupancy rate has held firm at 96%. The Trust has elected to stop recording
revenue on the disclaimed leases until all outstanding amounts under the Target U.S. guarantee have been received.
This has resulted in a negative impact on the Trust's second quarter net operating income of $0.4 million.
The renovation of St. Laurent Centre is complete. During the term of the renovation, the centre experienced an
increase in vacancy due to the early termination of some fashion tenants and the bankruptcy of Everest College. The
timing of the renovation puts the Trust in a better position to replace these tenancies. During the second quarter of
2014 the Trust accelerated the recovery of certain maintenance items at the St. Laurent Centre to offset savings in
other areas. This acceleration improved the Trust's net operating income in 2014. This same acceleration was not
required during 2015. As a result, the Trust's quarter over quarter net operating income is lower by $0.9 million.
Putting the Target and St. Laurent Centre challenges aside, the Trust’s results for the second quarter 2015 versus the
second quarter 2014 were largely unchanged. The exit of Target from our centres has had no impact on sales. In
addition to the renegotiation of the Target spaces the Trust completed over 385,000 square feet of leasing. The Trust
was also able to close on two more of the properties held for sale. These proceeds were largely used to buy back
units of the Trust. During the second quarter the Trust repurchased 362,119 units.
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PORTFOLIO OVERVIEW
The risk and reliability characteristics of real estate asset classes are different, and delivering on the primary business
goal requires a mix of assets that balance risk and rewards. As at June 30, 2015, the Trust owned a diversified
income producing property portfolio of 49 (excluding properties held for sale) retail, office and other properties
consisting of approximately 8.6 million square feet of gross leasable area (“GLA”) located in the provinces of British
Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec.
Retail: The retail portfolio includes two broad categories of income producing properties: enclosed full-scale,
regional shopping centres that are dominant in their respective markets; and neighbourhood and community shopping
centres that are primarily anchored by food retailers, discount department stores and banking institutions. Investing
across these two broad categories of retail assets allows the Trust to spread its tenant base reducing its exposure to a
single category retailer.
Office: The office portfolio is focused on well-located, high-quality properties in major Canadian urban centres. The
portfolio is balanced between: single-tenant properties under long-term lease to government and large national
tenants that work to secure the Trust’s cash flow and multi-tenant properties with well-distributed lease expiries that
allow the Trust to benefit from increased rental rates on lease renewal.
Other: The Trust has an interest in four industrial properties located in Ontario and Quebec.
PORTFOLIO COMPOSITION BY ASSET TYPE AND LOCATION
TABLE 2
AT THE TRUST'S OWNERSHIP SHARE
Retail
Number of
Properties
British Columbia
3
Alberta
Saskatchewan
Manitoba
Ontario
Location
Office
GLA (000's)
Number of
Properties
600
3
5
818
1
489
3
658
9
2,210
Other
Total
GLA (000's)
Number of
Properties
GLA (000's)
Number of
Properties
600
—
GLA (000's)
—
6
1,200
10
1,319
—
—
—
—
15
2,137
—
—
1
489
—
—
—
—
3
658
9
1,022
3
95
21
3,327
Quebec
—
—
2
575
1
243
3
818
Income producing properties
21
4,775
24
3,516
4
338
49
8,629
Properties under development
—
—
—
—
—
—
—
—
Properties held for sale
—
—
—
—
1
197
1
197
Total real estate properties
21
4,775
24
3,516
5
535
50
8,826
MORGUARD.COM
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PART III
PROPERTY PERFORMANCE
NET OPERATING INCOME
NOI is used as a key indicator of performance as it represents a measure over which management has control. The
Trust evaluates the performance of management by comparing the performance of the property portfolio adjusted for
the effect of one-time items and acquisitions, dispositions and developments.
NOI is an additional GAAP measure and is defined by the Trust as revenue from real estate properties less property
operating expenses, property taxes and property management fees.
For the six months ended June 30, 2015, the Trust’s retail properties accounted for more than 50% of NOI from
income producing properties (52%), with the office portfolio accounting for 47%. The Trust’s other portfolio accounts
for only 1% of the Trust’s NOI from income producing properties.
NET OPERATING INCOME BY ASSET TYPE AND LOCATION
TABLE 3
Retail
Office
Number of
Properties
NOI
(000's)
British Columbia
3
Alberta
5
Saskatchewan
Manitoba
Other
Total
Number of
Properties
NOI
(000's)
Number of
Properties
NOI
(000's)
$5,259
3
$6,331
—
6,629
10
20,100
—
1
4,013
—
—
3
5,414
—
—
Ontario
9
21,990
9
Quebec
—
—
2
21
43,305
24
—
—
—
Location
Number of
Properties
NOI
(000's)
$—
6
$11,590
—
15
26,729
—
—
1
4,013
—
—
3
5,414
8,746
3
505
21
31,241
4,169
1
691
3
4,860
39,346
4
1,196
49
83,847
—
—
(50)
—
(50)
—
—
—
164
1
628
1
792
21
$43,305
24
$39,510
5
$1,774
50
$84,589
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A complete reconciliation of NOI discussed in this MD&A to NOI per the condensed consolidated financial statements
is provided in Part X.
COMPARATIVE NET OPERATING INCOME ANALYSIS
TABLE 4
Three months ended June 30
2015
2014
Variance
2015
2014
Variance
%
$70,951
$72,396
(2.0%)
$144,181
$144,952
($771)
(0.5%)
Property operating expenses
15,412
15,231
181
1.2 %
31,687
31,821
(134)
(0.4%)
Property taxes
12,959
12,736
223
1.8 %
25,967
25,297
670
2.6%
2,318
2,333
(15)
(0.6)%
4,664
4,693
(29)
(0.6%)
$40,262
$42,096
($1,834)
(4.4%)
$81,863
$83,141
($1,278)
(1.5%)
Property management fees
Net operating income – same assets
($1,445)
Six months ended June 30
%
The components of NOI are displayed in the table above. For comparability, the NOI is focused on same assets.
Assets acquired, disposed of and developed over the comparable periods are removed.
Property management fees are the direct result of the Trust’s management agreement with Morguard Investments
Limited. The property management agreement permits property management fees to be charged, at variable rates,
on revenue from real estate properties based on asset type. Fees average 3.25% of revenue from real estate
properties. With few exceptions, these fees are recoverable from tenants.
COMPARATIVE NET OPERATING INCOME BY ASSET TYPE FOR INCOME PRODUCING PROPERTIES
TABLE 5
2015
2014
Retail
$20,944
$23,083
Office
18,728
18,403
Other
590
610
$40,262
$42,096
Net operating income - same assets
Variance
2015
2014
(9.3%)
$42,998
$44,775
325
1.8%
37,670
37,155
515
1.4%
(20)
(3.3%)
1,195
1,211
(16)
(1.3%)
($1,834)
(4.4%)
$81,863
$83,141
($1,278)
(1.5%)
($2,139)
%
Variance
($1,777)
%
(4.0%)
RETAIL OVERVIEW
As at June 30, 2015, the Trust’s regional shopping centre portfolio totaled 3.5 million square feet of GLA which
comprises a 100% interest in six regional centres totaling 3.4 million square feet and a 50% interest in one additional
centre comprising 0.1 million square feet. As at June 30, 2015, the Trust's neighbourhood and community shopping
centre portfolio totaled 1.3 million square feet of GLA comprising a 100% interest in 13 such properties totaling 1.2
million square feet, as well as a 50% interest in one additional property totaling 0.1 million square feet.
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RETAIL NET OPERATING INCOME
TABLE 6
Revenue from retail properties
2015
2014
Variance
%
2015
2014
Variance
%
$36,114
$38,190
($2,076)
(5.4%)
$74,305
$76,231
($1,926)
(2.5%)
7,202
7,293
(91)
(1.2%)
15,216
15,629
(413)
(2.6%)
Property taxes
6,746
6,562
184
2.8%
13,586
13,295
291
2.2%
1,222
1,252
(30)
(2.4%)
2,505
2,532
(27)
(1.1%)
$20,944
$23,083
($2,139)
(9.3%)
$42,998
$44,775
($1,777)
(4.0%)
The Trust’s retail NOI from same assets for the three months ended June 30, 2015 was $20.9 million versus $23.1
million for the same period in 2014. This represents a decrease of 9.3%. The decrease derives from increased
vacancy costs at four of the Trust’s regional shopping centres impacted by either disclaimed or acquired Target
leases, which has resulted in a negative impact on the Trust's net operating income of $0.4 million. The performance
is also impacted by the 2014 acceleration of operating cost recoveries at the St. Laurent Centre, which amounted to
$0.9 million.
The Trust’s retail NOI from same assets for the six months ended June 30, 2015 was $43.0 million versus $44.8
million for the same period in 2014. This represents a decrease of 4.0%. The decrease derives from increased
vacancy costs at four of the Trust’s regional shopping centres impacted by either disclaimed or acquired Target
leases, which has resulted in a negative impact on the Trust's net operating income of $0.4 million. The performance
is also impacted by the 2014 acceleration of operating cost recoveries at the St. Laurent Centre, which amounted to
$0.9 million.
RETAIL LEASE PROFILE
TABLE 7
Sq.Ft.
% of
Portfolio
Weighted
Average
Contract
Rent
(remainder of the year) 2015
352,388
7.4%
$21.88
2016
653,380
13.7%
15.68
2017
370,495
7.8%
27.86
2018
390,841
8.2%
26.42
Thereafter
2,436,308
50.9%
20.76
Current vacancy
571,542
12.0%
—
4,774,954
100.0%
$21.18
Total
Weighted average remaining lease term years
The Trust has the opportunity to increase rental rates
on lease maturity where the current contract rent is
less than the going market rate.
The table to the left provides a summary of the lease
maturities net of committed renewals, for the next four
years and thereafter, along with the associated contract
rents at maturity.
Lower contract rent displayed in 2016 and “thereafter”
are the result of anchor tenant maturities.
4.74
The following table provides a quarterly summary of the remaining 2015 expiries net of committed renewals, along
with the associated contract rents, for the Trust’s retail portfolio.
RETAIL – REMAINING 2015 EXPIRIES (NET OF RENEWALS)
TABLE 8
Total
Remaining
Gross leasable area
Average net rent per sq ft
MORGUARD.COM
Q3 2015
Q4 2015
2015
244,527
107,861
352,388
$22.03
$21.64
$21.88
9
RETAIL – 2015 LEASE ACTIVITY
TABLE 9
Opening Vacancy (sq ft)
Q2 2015
YTD 2015
209,655
173,767
Opening Occupancy
96%
96%
EXPIRING LEASES:
Square feet
127,818
267,599
$22.96
$24.09
398,320
425,462
$7.57
$9.51
115,533
201,489
$19.60
$22.79
EARLY TERMINATIONS:
Square feet
RENEWALS:
Square feet
Retention rate
90.4%
75.3%
NEW LEASING:
Square feet
48,718
93,797
$22.47
$26.49
571,542
571,542
Ending Vacancy (sq ft)
Ending Occupancy
The table to the left provides a summary of the leasing
activities accomplished during the three months and six
months ended June 30, 2015.
88%
88%
For the three months ended June 30, 2015, the Trust
realized an average decrease of $3.36 per square foot
on renewals, while maintaining a 90.4% retention rate
for existing tenants. In addition, the Trust realized an
average decrease of $0.49 per square foot on new
leasing.
For the six months ended June 30, 2015, the Trust
average uplift of $2.40 per square foot on new leasing.
During the quarter, occupancy was impacted by the
early termination of 379,500 square feet of either
disclaimed or acquired Target leases at four of the
Trust's regional shopping centres and has decreased
to 88%. The impact of the Target early terminations on
NOI is less than 1%.
RETAIL GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING
TABLE 10
2013
In thousands of square feet
Retail portfolio GLA
% retail GLA occupied
2014
2015
Q3
Q4
Q1
Q2
Q3
Q4
4,295
4,771
4,778
4,781
4,778
4,775
97%
98%
97%
97%
96%
96%
Q1
4,775
96%
Q2
4,775
88%
The retail portfolio square footage and quarterly occupancy for the past eight quarters are outlined in table 10.
Occupancy levels, which have historically remained high with little volatility, were adjusted in the current quarter to
fully reflect four of the Trust’s regional shopping centres impacted by either disclaimed or acquired Target leases. The
space vacated by Target equates to the early termination of 379,500 square feet and as a result, the Trust's retail
occupancy has decreased to 88%. Adjusting for the vacant Target space, the Trust's retail portfolio occupancy rate
has held firm at 96%.
MORGUARD.COM
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OFFICE OVERVEIW
To maximize its office portfolio, the Trust leverages opportunities to co-invest with others who have similar strategic
objectives. As at June 30, 2015, the Trust’s office portfolio included 100% ownership interests in 16 office properties
comprising 2.1 million square feet, 50% interests in seven properties and a 20% interest in one property. The Trust’s
office portfolio totals 3.5 million square feet.
OFFICE NET OPERATING INCOME
TABLE 11
2015
2014
Variance
%
2015
2014
Variance
%
$33,987
$33,359
$628
1.9%
$68,173
$67,017
$1,156
1.7%
8,128
7,879
249
3.2%
16,324
16,062
262
1.6%
Property taxes
6,057
6,018
39
0.6%
12,064
11,683
381
1,074
1,059
15
1.4%
2,115
2,117
$18,728
$18,403
$325
1.8%
$37,670
$37,155
Revenue from office properties
(2)
$515
3.3%
(0.1%)
1.4%
Office NOI from same assets increased by 1.8% to $18.7 million for the three months ended June 30, 2015, from
$18.4 million for the same period in 2014. This increase in NOI is primarily due to continued modest uplifts in basic
rents at several of the Trust’s office properties for deals completed in late 2014.
Office NOI from same assets increased by 1.4% to $37.7 million for the six months ended June 30, 2015, from $37.2
million for the same period in 2014. This increase in NOI is primarily due to continued modest uplifts in basic rents at
several of the Trust’s office properties for deals completed in late 2014.
OFFICE LEASE PROFILE
TABLE 12
Sq.Ft.
% of
Portfolio
Weighted
Average
Contract
Rent
52,230
1.5%
$19.88
2016
318,901
9.1%
$21.57
2017
283,017
8.0%
$23.08
2018
179,376
5.1%
$22.58
Thereafter
2,550,752
72.5%
$22.87
Current vacancy
132,553
3.8%
—
Total
3,516,829
100.0%
$22.71
The Trust has the opportunity to increase rental rates
on lease maturity where the current contract rent is
less than the going market rate.
maturities net of committed renewals, over the next
four years and thereafter, along with the associated
contract rents at maturity.
7.32
with the associated contract rents, for the Trust’s office portfolio.
OFFICE – REMAINING 2015 EXPIRIES (NET OF RENEWALS)
TABLE 13
Total
Remaining
Q3 2015
Q4 2015
2015
Gross leasable area
17,855
34,375
52,230
$20.72
$19.45
$19.88
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OFFICE – 2015 LEASE ACTIVITY
TABLE 14
Q2 2015
YTD 2015
125,644
132,721
Opening Occupancy
96%
96%
EXPIRING LEASES:
Square feet
58,403
100,961
$19.79
$18.55
9,341
11,197
$30.43
$27.29
Square feet
46,206
77,621
$15.32
$17.20
EARLY TERMINATIONS:
Square feet
RENEWALS:
Retention rate
79.1%
76.9%
NEW LEASING:
Square feet
14,629
34,705
$24.29
$19.66
132,553
132,553
Ending Occupancy
96%
For the three months ended June 30, 2015, the Trust
Ending occupancy remained stable at 96%.
96%
OFFICE GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING
TABLE 15
2013
Office portfolio GLA
% office GLA occupied
2014
2015
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
3,468
3,466
3,471
3,482
3,520
3,526
3,525
3,516
95%
95%
96%
96%
96%
96%
96%
96%
The office portfolio square footage and quarterly occupancy for the past eight quarters are outlined in table 15.
Occupancy levels throughout the period remained high, with little volatility. The differential between the highest and
lowest level of portfolio occupancy over this two-year period is only 100 basis points (96% being the highest and 95%
being the lowest).
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OTHER OVERVIEW
The Trust’s other portfolio includes 100% interests in three industrial properties comprising 0.1 million square feet and
a 50% interest in one industrial property comprising 0.2 million square feet.
OTHER NET OPERATING INCOME
TABLE 16
Revenue from other properties
Property taxes
2015
2014
Variance
$850
$847
82
59
156
22
$590
$610
%
2015
2014
$3
0.4%
$1,703
$1,704
23
39.0%
147
130
156
—
—%
317
22
—
—%
44
$1,195
$1,211
($20)
(3.3%)
Variance
%
($1)
(0.1%)
17
13.1%
319
(2)
(0.6%)
44
—
—%
($16)
(1.3%)
Other NOI from same assets remained stable at $0.6 million and $1.2 million for the three months and six months
ended June 30, 2015, and for the same periods in 2014.
OTHER LEASE PROFILE
TABLE 17
Sq. Ft.
% of
Portfolio
Weighted
Average
Contract
Rent
8,520
2.5%
$9.29
2016
10,375
3.1%
10.41
2017
34,729
10.3%
11.12
2018
15,067
4.5%
10.83
Thereafter
267,043
79.0%
5.97
Current vacancy
1,900
0.6%
—
Total
337,634
100.0%
$6.94
maturities net of committed renewals, over the next
four years and thereafter along with the associated
contract rents at maturity.
Lower contract rent displayed in “thereafter” is mainly
the result of a long-term lease at one of the Quebec
industrial properties due to expire in 2022. The lease
was originally entered into in 2002.
6.28
with the associated contract rents, for the Trust’s other portfolio.
OTHER – REMAINING 2015 EXPIRIES (NET OF RENEWALS)
TABLE 18
Total
Remaining
Q3 2015
Q4 2015
2015
Gross leasable area
3,821
4,699
8,520
$9.50
$9.11
$9.29
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OTHER – 2015 LEASE ACTIVITY
TABLE 19
Q2 2015
YTD 2015
1,900
Opening Occupancy
1,900
99%
99%
EXPIRING LEASES:
Square feet
—
3,800
$—
$9.00
EARLY TERMINATIONS:
Square feet
—
—
$—
$—
RENEWALS:
Square feet
Retention rate
—
3,800
$—
$10.00
—%
For the three months ended June 30, 2015, no leasing
activity was achieved.
realized an average uplift of $1.00 per square foot on
renewals, while maintaining a 100.0% retention rate for
existing tenants. No new leasing was achieved during
this period.
Ending occupancy remained stable at 99%.
100.0%
NEW LEASING:
Square feet
Ending Occupancy
—
—
$—
$—
1,900
1,900
99%
99%
OTHER GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING
TABLE 20
2013
2014
Q3
Q4
Other portfolio GLA
366
338
% other GLA occupied
99%
99%
Q1
2015
Q2
Q3
Q4
Q1
Q2
338
336
338
338
338
338
100%
100%
99%
99%
99%
99%
The other portfolio square footage and quarterly occupancy for the past eight quarters is outlined in table 20.
Occupancy levels throughout the period remained very high, with little volatility. The differential between the highest
and lowest level of portfolio occupancy over this two year period was 100 basis points (100% being the highest and
99% being the lowest).
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PART IV
TRUST PERFORMANCE
FUNDS FROM OPERATIONS
The Trust presents FFO in accordance with the Real Property Association of Canada (“REALpac”) white paper on
funds from operations for IFRS issued April 2014. In accordance with such white paper, the Trust defines FFO as net
income adjusted for fair value changes on real estate properties and gains/(losses) on the sale of real estate
properties.
FFO is a non-GAAP measure that is widely accepted as a supplemental measure of financial performance for real
estate entities; however, it does not represent amounts available for capital programs, debt service obligations,
commitments or uncertainties. FFO should not be interpreted as an indicator of cash generated from operating
activities and is not indicative of cash available to fund operating expenditures, or for the payment of cash
distributions. FFO is simply one measure of operating performance.
FUNDS FROM OPERATIONS
TABLE 21
In thousands of dollars, except per-unit amounts
2015
($20,217)
2014
$34,151
2015
2014
($4,194)
$70,424
Add/(deduct) items not affecting cash:
Fair value losses/(gains) on real estate properties1
45,267
(7,129)
56,418
(17,362)
Basic funds from operations
25,050
27,022
52,224
53,062
1,813
1,814
3,607
3,608
$26,863
$28,836
$55,831
$56,670
$0.40
$0.43
$0.84
$0.85
$0.40
$0.42
$0.82
$0.83
62,084
62,138
62,127
62,181
68,181
68,235
68,224
68,279
Interest expense on convertible debentures
Diluted funds from operations
FUNDS FROM OPERATIONS PER UNIT
Basic
Diluted
2
WEIGHTED AVERAGE UNITS OUTSTANDING (IN THOUSANDS)
Basic
Diluted
1.
2.
2
Includes fair value gains on real estate properties included in net income/(loss) from equity-accounted investments.
Includes the dilutive impact of convertible debentures.
FFO was $0.40 per unit ($0.40 per unit - diluted) for the three months ended June 30, 2015, compared to $0.43 per
unit ($0.42 per unit - diluted) for the same period in 2014. This represents a decrease of 7% or $0.03 per unit ($0.02
per unit - diluted).
FFO was $0.84 per unit ($0.82 per unit - diluted) for the six months ended June 30, 2015, compared to $0.85 per unit
($0.83 per unit - diluted) for the same period in 2014. This represents a decrease of 1% or $0.01 per unit ($0.01 per
unit - diluted).
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FFO derives from net income. The key components of net income are presented in the table below:
NET INCOME
TABLE 22
Net operating income from total real estate properties
Interest expense
General and administrative
Other income
Income before fair value(losses)/gains and other expenses and fair
value changes from equity-accounted investments
Fair value (losses/)/gains on real estate properties
Other expenses and fair value changes from equity-accounted investments
2015
2014
2015
2014
$41,103
$44,155
$84,589
$87,196
14,807
15,334
29,848
30,746
1,128
1,433
2,287
2,662
(167)
—
(342)
—
25,335
27,388
52,796
53,788
(45,295)
7,168
(56,462)
17,416
(257)
($20,217)
(405)
$34,151
(528)
($4,194)
(780)
$70,424
NET OPERATING INCOME
The analysis of property performance in Part III was focused on same asset NOI which is reconciled to NOI per the
condensed consolidated financial statements in Part X.
Same asset NOI for the three months ended June 30, 2015, was $40.3 million, a decrease of $1.8 million from the
same period in 2014. Net operating income from all properties was $41.1 million for the three months ended June 30,
2015 versus $44.2 million for the same period in 2014. The remaining unfavorable change during the three months of
$1.3 million is mainly the result of the Trust’s disposition and acquisition programs. The Trust’s disposition of Cedar
Pointe Business Park in July 2014, 350 Sparks/361 Queen in February 2015, 5591-5631 Finch in April 2015 and
20-24 Lesmill in May 2015 resulted in a $1.1 million reduction in NOI. This was offset by a positive impact of $0.3
million from the Trust’s acquisition of 301 Laurier Avenue in June 2014 and Citadel West in July 2014. Outside of the
disposition and acquisition programs, during the three months ended June 30, 2015, the Trust was negatively
impacted by $0.5 million from amortized step rents.
Same asset NOI for the six months ended June 30, 2015, was $81.9 million, a decrease of $1.3 million from the same
period in 2014. Net operating income from all properties was $84.6 million for the six months ended June 30, 2015
versus $87.2 million for the same period in 2014. The remaining unfavorable change during the six months of $1.3
million is mainly the result of the Trust’s disposition and acquisition programs. The Trust’s disposition of Cedar Pointe
Business Park in July 2014, 350 Sparks/361 Queen in February 2015, 5591-5631 Finch in April 2015 and 20-24
Lesmill in May 2015 resulted in a $1.8 million reduction in NOI. This was offset by a positive impact of $0.7 million
from the Trust’s acquisition of 301 Laurier Avenue in June 2014 and Citadel West in July 2014. Outside of the
disposition and acquisition programs, during the six months ended June 30, 2015, the Trust was negatively impacted
by $0.7 million from amortized step rents, which was offset by $0.5 million in one-time lease cancellation fees.
INTEREST EXPENSE
Interest expense totaled $14.8 million for the three months ended June 30, 2015, compared to $15.3 million for the
same period in 2014. For the three months ended June 30, 2015, $1.7 million of interest expense has been replaced
with $1.1 million on same levels of financing and $0.6 million of interest expense on increased levels of financing.
Other factors reducing interest expense during the period include interest capitalized to development projects of $0.2
million and mortgage amortizations of $0.4 million.
Interest expense totaled $29.8 million for the six months ended June 30, 2015, compared to $30.7 million for the
same period in 2014. For the six months ended June 30, 2015, $3.4 million of interest expense has been replaced
with $2.2 million on same levels of financing and $1.2 million of interest expense on increased levels of financing.
Other factors reducing interest expense during the period include interest capitalized to development projects of $0.4
million and mortgage amortizations of $0.7 million.
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The following table outlines, by quarter, the Trust’s weighted average rates on mortgages payable in 2015 and 2014.
The rates are calculated excluding mortgages tied to real estate properties held for sale.
WEIGHTED AVERAGE RATES – MORTGAGES PAYABLE
TABLE 23
2015
2014
March 31
4.2%
4.4%
June 30
4.2%
4.2%
September 30
4.2%
December 31
4.2%
The Trust has reduced the weighted average interest
rate by more than 20 basis points from the start of
2014, which has held constant at 4.2%.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended June 30, 2015, was $1.1 million, a decrease of $0.3
million from the same period in 2014. This favorable decrease is mainly the result of higher SARs expenses incurred
in 2014.
General and administrative expenses for the six months ended June 30, 2015, was $2.3 million, a decrease of $0.4
million from the same period in 2014. This favorable decrease is mainly the result of higher SARs expenses incurred
in 2014.
ADJUSTED FUNDS FROM OPERATIONS
AFFO is a non-GAAP measure that is widely accepted as an alternative measure of cash generated from operations.
AFFO per unit is calculated by adjusting FFO for accretion of convertible debentures, straight-line rent and productive
capacity maintenance expenditures (“PCME”).
PCME are expenditures on leasing, replacement or major repair of component parts of properties that are required to
preserve the existing earning capacity of the Trust’s real estate portfolio. The Trust categorizes these expenditures as
leasing commissions, tenant allowances and recoverable and non-recoverable capital expenditures.
Leasing Commissions and Tenant Allowances: The Trust requires ongoing capital spending on leasing
commissions and tenant allowances pertaining to new and renewed tenant leases. These costs depend on many
factors, including, but not limited to, tenant maturity profile, vacancies, asset type, prevailing market conditions and
unforeseen tenant bankruptcies.
Recoverable and Non-Recoverable Capital Expenditures: The Trust continually invests in major repair and
replacement of component parts, such as, roof, parking lot, elevators and HVAC of the properties to physically
maintain them. These costs depend on many factors including, but not limited to, age and location of the property.
Most of these capital expenditure items are recovered from tenants, over time, as property operating costs.
Commencing in 2014, the Trust uses normalized PCME to calculate AFFO. These normalized expenditures are
based on expected average expenditures for the current property portfolio over a three-year horizon, with
consideration to historical and forecasted spending patterns. Actual expenditures (Table 25) in any given year may
exceed the normalized estimation.
There is no industry standard defined measure of AFFO. As such, the Trust’s method of calculating AFFO may differ
from other issuers’ methods and accordingly, may not be comparable to such amounts reported by other issuers.
MORGUARD.COM
17
ADJUSTED FUNDS FROM OPERATIONS
TABLE 24
2015
2014
2015
2014
$25,050
$27,022
$52,224
$53,062
Add/(deduct)
Accretion of convertible debentures
Amortized stepped rents
77
72
158
(123)
(652)
(714)
(1,326)
149
Productive capacity maintenance expenditures (normalized)
(6,250)
(6,250)
(12,500)
(12,500)
Adjusted funds from operations – Basic
18,754
20,192
39,168
39,385
Interest expense on convertible debentures
1,813
1,814
3,607
3,608
$20,567
$22,006
$42,775
$42,993
Adjusted funds from operations – Diluted
The following table provides a breakdown of actual PCME for the three months and six months ended June 30, 2015
and for the same periods in 2014.
ACTUAL PRODUCTIVE CAPACITY MAINTENANCE EXPENDITURES
TABLE 25
2015
2014
2015
2014
$1,272
$1,005
$2,320
$1,735
Tenant allowances
2,070
2,291
5,252
4,026
Total leasing costs
3,342
3,296
7,572
5,761
Capital expenditures recoverable from tenants
2,026
1,054
3,511
2,013
137
154
262
293
Total capital expenditures
2,163
1,208
3,773
2,306
Total productive capacity maintenance expenditures
5,505
4,504
11,345
8,067
364
690
4,231
853
$5,869
$5,194
$15,576
$8,920
Leasing commissions
Capital expenditures non-recoverable from tenants
Discretionary capital expenditures
Total leasing costs and capital expenditures
Discretionary Capital Expenditures
In addition to PCME the Trust invests in discretionary capital projects on the development of new space, redevelopment or retrofit of existing properties, and other capital expenditures to create additional long-term value for
the Trust’s real estate portfolio. These discretionary capital expenditures are not expected to occur on a consistent
basis. These expenditures are included in the above table along with the recoverable and non-recoverable capital
expenditures. The increase in discretionary capital expenditures during the three months and six months ended June
30, 2015 mainly relates to electrical and watermain replacements, as part of the overall revitalization program to
refresh and modernize the St. Laurent Centre.
DISTRIBUTIONS TO UNITHOLDERS
The Trust’s primary business goal is to accumulate a Canadian portfolio of high-quality real estate assets and then
deliver the benefits of such real estate ownership to unitholders. The primary benefit is a reliable and, over time,
increasing cash distribution.
The Trust expects to distribute to its unitholders, in each year, an amount not less than the Trust’s taxable income for
the year, as calculated in accordance with the Canadian Income Tax Act (“the Act”). The Trust’s monthly distribution to
unitholders in 2015 was $0.08 per unit, representing $0.96 per unit on an annualized basis.
In determining the annual level of distributions to unitholders, the Trust looks at forward-looking cash flow information,
including forecasts and budgets, and the future prospects of the Trust. The Trust does not consider periodic cash flow
fluctuations, resulting from items such as the timing of property operating costs, property tax installments or semiMORGUARD.COM
18
annual debenture interest payments, in determining the level of distributions to unitholders in any particular quarter.
Additionally, in establishing the level of cash distributions to the unitholders, the Trust considers the impact of, among
other items, the future growth in the income producing properties, the impact of future acquisitions and capital
expenditures, and leasing costs. As a result, the Trust compares distributions to AFFO to ensure sufficient funds are
retained for reinvestment.
DISTRIBUTIONS TO UNITHOLDERS
TABLE 26
2015
2014
2015
2014
Adjusted funds from operations per unit - basic and diluted
$0.30
$0.32
$0.63
$0.63
Cash distributions per unit
$0.24
$0.24
$0.48
$0.48
Distributions paid as a percentage of adjusted funds from operations per unit - diluted
80.0%
75.0%
76.2%
76.2%
The following table provides a reconciliation of AFFO to cash provided by operating activities per the condensed
consolidated financial statements:
TABLE 27
Cash provided by operating activities
Changes in working capital
2014
2015
2014
$17,759
$22,690
$40,734
$43,725
5,112
2,569
7,257
(700)
Non-cash amortizations
Net Income from equity-accounted investments before fair value adjustments
1,071
714
(166)
1,273
1,002
19
Tenant Incentive additions
Productive capacity maintenance expenditures (normalized)
(724)
827
Contributions/(distributions) from equity-accounted investments
Deferred leasing cost additions
2015
—
(6,250)
(6,250)
6,494
(585)
(1,450)
1,638
2,141
125
(843)
2,321
1,732
178
86
(12,500)
(12,500)
$18,754
$20,192
$39,168
$39,385
$18,754
$20,192
$39,168
$39,385
Cash distributions
14,768
14,713
29,560
29,507
Excess adjusted funds from operations after cash distributions
$3,986
$5,479
$9,608
$9,878
The following table provides a summary of distributions relative to cash flow from operating activities per the
condensed consolidated financial statements:
TABLE 28
2015
2014
2015
2014
$17,759
$22,690
$40,734
$43,725
Cash distributions
14,768
14,713
29,560
29,507
Excess of cash from operating activities over cash distributions
$2,991
$7,977
$11,174
$14,218
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PART V
REAL ESTATE OVERVIEW
The carrying value of the Trust’s real estate properties decreased to $2.9 billion as at June 30, 2015 (December 31,
2014 – $3.0 billion). This decrease is mainly resulting from the dispositions of 350 Sparks/361 Queen, 5591-5631
Finch and 20-24 Lesmill, as well as fair value losses during the period.
Income producing properties were affected by additions from the Trust’s capital investment programs (including
PCME and completed development), which were offset by fair value losses.
REAL ESTATE PROPERTIES
TABLE 29
June 30,
As at
December 31,
2015
2014
$2,848,635
$2,884,824
24,857
16,511
Land held for development
27,650
27,650
2,901,142
2,928,985
Total real estate properties (excluding properties held for sale)
9,600
63,190
$2,910,742
$2,992,175
A complete reconciliation of real estate properties discussed in this MD&A to real estate properties per the condensed
consolidated financial statements is provided in Part X.
PROPERTIES UNDER DEVELOPMENT
The Trust’s development program consists of projects identified by management to create additional long term value
for the Trust’s real estate portfolio and align with the long-term strategic objectives. These may include development
projects to expand leasable area, re-development of an existing area, and retrofit opportunities.
The following table details the Trust’s active (in progress) development projects.
DEVELOPMENT PROJECTS IN PROGRESS
TABLE 30
Location
Asset
Type
St. Laurent Centre, Ottawa, ON
Retail
Trust
Ownership
%
100%
Cost to
Date
Cost to
Complete
Total
Project
Cost
$22,413
$1,252
$23,665
Completion
Date
Revitalization project to refresh and
July 2015 modernize the centre
Penn West Plaza, Calgary, AB
Office
100%
54
5,946
6,000
Addition of Plus 15 connection to the
city's enclosed pedestrian skywalk
December 2016 system
Heritage Place, Ottawa, ON
Office
50%
1,207
593
1,800
Reconfiguration of new space for
August 2015 Winners
Parkland Mall, Red Deer, AB
Retail
100%
—
15,200
15,200
23,674
22,991
46,665
Developments – in progress
Other
MORGUARD.COM
Various
1,183
—
—
$24,857
$22,991
$46,665
Anchor Tenant re-merchandising for
August 2016 Goodlife Fitness Centres
Pre-development costs
20
ACQUISITION PROGRAM
The table below details acquisitions completed in 2014. There have been no acquisitions in 2015.
TABLE 31
In thousands of dollars, square feet
Transaction date
Asset class
Location
Trust ownership share
GLA
Purchase price
Capitalization rate
Associated debt
Interest rate on associated debt
Occupancy
Key tenants
2014
2014
Citadel West
301 Laurier
Avenue
July 25
June 4
Office
Office
Calgary, AB
Ottawa, ON
50.0%
50.0%
39,000
17,500
$19,000
$4,037
5.7%
$7,581
3.3%
100.0%
CH2M Hill
The acquisition of Citadel West provides the Trust with
100% ownership. This property has provided
consistent results since the Trust first purchased 50%
of the asset in 2011.
301 Laurier Avenue was a strategic purchase required
to complete the Trust’s presence at the downtown
intersection of Slater, Laurier, Bank and Kent providing
the flexibility to maximize long-term value opportunities.
7.0%
None
NA
100.0%
Unifor
DISPOSITION PROGRAM
The table below details dispositions completed during the six months ended June 30, 2015 and for the year ended
December 31, 2014.
TABLE 32
2015
2015
20-24
Lesmill
5591-5631
Finch
Transaction date
May 15
April 1
Asset class
Location
Other
Other
Toronto, ON
Toronto, ON
100.0%
GLA
27,577
210,123
Sale price (000's)
$6,350
$10,000
Capitalization rate
Associated debt
Occupancy
Key tenants
MORGUARD.COM
6.0%
None
NA
100.0%
City of Toronto
100.0%
On March 2, 2015 the Trust entered into an agreement
to sell 5591-5631 Finch. On April 1, 2015, the Trust
completed the sale of this property for a total price of
$10.0 million, less selling costs.
On December 10, 2014 the Trust entered into an
agreement to sell 20-24 Lesmill. On May 15, 2015, the
Trust completed the sale of this property for a total
price of $6.4 million, less selling costs.
8.0%
$6,125
5.14%
92.2%
Humbervale
Machinery/CTI
Industries
21
2015
2014
350 Sparks/361
Queen
Cedar Pointe
Business Park
Transaction date
February 17
July 2
Asset class
Office/Other
Office
Location
Ottawa, ON
Barrie, ON
GLA
50.0%
100.0%
86,372
351,000
Sale price (000's)
$37,692
$41,900
Capitalization rate
n/a
Associated debt
$17,835
6.0%
$13,747
3.3%
5.1%
Occupancy
85.4%
87.0%
Key tenants
CIRA
Municipal Services
On February 17, 2015, the Trust completed the sale of
350 Sparks and 361 Queen to Morguard, for a total
price of $37.7 million, which included an assumption of
the existing mortgage debt of $17.8 million, less selling
costs. At the time of sale, 361 Queen was vacant and
not generating income. As a result, establishing an
appropriate capitalization rate was deemed
indeterminable and therefore classified as not
applicable.
The sale of Cedar Pointe Business Park removes the
Trust from its exposure to ongoing leasing challenges
at the property. The proceeds from the sale will be
used to complete the large revitalization program, in
progress, at the St. Laurent Centre (see Development
projects in-progress).
FAIR VALUE (LOSSES)/GAINS ON REAL ESTATE PROPERTIES RECOGNIZED IN NET INCOME
For the three months ended June 30, 2015, the Trust recorded fair value losses on real estate properties of $45.3
million, versus $7.1 million of fair value gains on real estate properties for the same period in 2014. The declines in
fair values during the three months fully reflect four of the Trust’s regional shopping centres impacted by either
disclaimed or acquired Target leases. The Trust was also impacted by the current economic downturn in the Alberta
office market.
For the six months ended June 30, 2015, the Trust recorded fair value losses on real estate properties of $56.4
million, versus $17.4 million of fair value gains on real estate properties for the same period in 2014. The declines in
fair values during the six months fully reflect four of the Trust’s regional shopping centres impacted by either
disclaimed or acquired Target leases. The Trust was also impacted by the current economic downturn in the Alberta
office market.
Fair value adjustments are determined on a quarterly basis based on the movement of various parameters, including
changes in projected cash flows as a result of leasing, timing and changes in discount rates, and terminal
capitalization rates.
Fair value (losses)/gains on real estate properties consist of the following:
TABLE 33
2015
($45,267)
2014
$7,325
2015
($56,377)
—
(149)
(41)
—
(47)
—
Total fair value (losses)/gains on real estate properties
($45,267)
$7,129
($56,418)
2014
$21,505
(3,906)
(237)
$17,362
A complete reconciliation of fair value (losses)/gains on real estate properties discussed in this MD&A to fair value
(losses)/gains on real estate properties per the condensed consolidated financial statements is provided in Part X.
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PART VI
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating the real estate properties represents the primary source of liquidity to service
debt, and to fund planned maintenance expenditures, leasing costs and distributions to unitholders.
Cash flow from operations is dependent upon occupancy levels of properties owned, rental rates achieved, collection
of rents, efficiencies in operations, the costs involved to lease or renew rental space and planned maintenance
expenditures, as well as other factors.
CASH FLOWS
The following table details the changes in cash and cash equivalents for the following periods:
TABLE 34
2015
2014
2015
2014
$18,366
$23,982
$40,322
$44,695
Cash (used in)/provided by financing activities
(35,980)
19,133
(59,930)
1,321
Cash provided by/(used in) investing activities
19,769
(12,333)
22,332
(16,305)
29,711
Net increase in cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
2,155
30,782
2,724
13,290
12,681
12,721
13,752
$15,445
$43,463
$15,445
$43,463
A complete reconciliation of cash flows discussed in this MD&A to cash flows per the condensed consolidated
financial statements is provided in Part X.
DEBT STRATEGY
The Trust’s long term debt strategy involves the use of three forms of debt: conventional property-specific secured
mortgages or bonds, unsecured convertible debentures, and secured floating-rate bank financing.
The Trust is limited by its Declaration of Trust to an overall indebtedness ratio of 60% of the gross book value of the
Trust’s total assets determined in accordance with IFRS. The debt limitations are in relation to the assets of the Trust
in aggregate. There are no individual property debt limitations or constraints imposed by the Declaration of Trust.
The Trust’s current operating strategy involves maintaining debt levels up to 50% of the gross book value of total
assets. Accordingly, the Trust does not generally repay maturing debt from cash flow, but rather with proceeds from
refinancing such debt, or financing unencumbered properties, and raising new equity or recycling equity through
property dispositions to finance investment activities.
The Trust has a revolving loan agreement with Morguard that provides for borrowings or advances of up to $50.0
million. This loan agreement is meant to provide short term financing and investing options. The promissory notes
are interest-bearing at the lender’s borrowing rate and are due on demand subject to available funds.
During the three months ended June 30, 2015, a gross amount of $nil was advanced to Morguard and $15.0 million
was repaid. During the six months ended June 30, 2015, a gross amount of $5.0 million was advanced to Morguard
and $15.0 million was repaid. As at June 30, 2015, the total amounts receivable from Morguard was $20.0 million
(December 31, 2014 – $30.0 million). For the three months ended June 30, 2015, the Trust earned interest income in
the amount of $167 (June 30, 2014 – $nil). For the six months ended June 30, 2015, the Trust earned interest income
in the amount of $342 (June 30, 2014 – $nil). As at June 30, 2015, the interest rate on the loan receivable from
Morguard was 2.19% (December 31, 2014 – 2.44%).
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DEBT STRUCTURE
TABLE 35
June 30,
As at
Conventional secured mortgages payable
Unsecured convertible debentures payable
Secured floating rate bank financing
December 31,
2015
%
2014
%
$1,195,061
89.0%
$1,212,561
88.9%
147,118
11.0%
146,541
10.7%
—
—%
4,927
0.4%
$1,342,179
100.0%
$1,364,029
100.0%
To manage long term interest rate risk, while providing flexibility in the execution of investment transactions,
management has historically utilized floating rate debt at less than 5% of the Trust’s total debt.
2012 CONVERTIBLE DEBENTURES PAYABLE
On October 31, 2012, the Trust issued a $150.0 million principal amount of 4.85% convertible unsecured subordinated
debentures (“2012 Debentures”), maturing on October 31, 2017 (the “Maturity Date”). Interest is payable semiannually, not in advance, on April 30 and October 31 of each year.
The 2012 debentures, with the exception of the value assigned to the holders’ conversion option, have been recorded
as debt on the consolidated balance sheets. The following table summarizes the allocation of the principal amount
and related issue costs of the 2012 Debentures at the date of original issue. The portion of issue costs attributable to
the liability of $4,183 has been capitalized and amortized over the term to maturity, while the remaining amount of $45
has been charged to equity.
TABLE 36
Principal
October 21, 2012
Issue costs
Convertible debentures payable
Issued
Liability
Equity
$150,000
$148,428
$1,572
(4,228)
$145,772
(4,183)
$144,245
(45)
$1,527
Conversion Rights: Each 2012 Debenture is convertible into freely tradable units of the Trust, at the option of the
holder, exercisable at any time prior to the close of business on the last business day preceding the maturity date at a
conversion price of $24.60 (the “Conversion Price”) per unit being a rate of approximately 40.6504 units per $1,000
principal amount of 2012 Debentures, subject to adjustment.
As at June 30, 2015, $15 (December 31, 2014 - $15) of the 2012 Debentures had been converted into 609 units. The
liability and equity component of these debentures has been included in unitholders’ equity under issue of units.
Redemption Rights: Each 2012 Debenture is redeemable any time from November 1, 2015 to the close of business
on October 31, 2016, in whole or in part, on at least 30 days' prior notice at a redemption price equal to par plus
accrued and unpaid interest, at the Trust’s sole option, provided that the weighted average trading price of the units
on the TSX for the 20 consecutive trading days ending five trading days prior to the date on which the notice of
redemption is given is not less than 125% of the conversion price.
From November 1, 2016, to the close of business on October 31, 2017, the 2012 Debentures are redeemable, in
whole or in part, at par plus accrued and unpaid interest, at the Trust’s sole option.
Repayment Options Payment on Redemption or Maturity: The Trust may satisfy the obligation to repay the
principal amount of the 2012 Debentures, in whole or in part, by delivering units of the Trust. In the event that the
Trust elects to satisfy its obligation to repay principal with units of the Trust, the number of units issued is obtained by
dividing the principal amount of the 2012 Debentures by 95% of the weighted average trading price of the units on the
MORGUARD.COM
24
TSX for the 20 consecutive trading days ending five trading days prior to the date fixed for redemption or the maturity
date, as applicable.
Interest Payment Election: The Trust may elect, subject to applicable regulatory approval, to issue and deliver units
of the Trust to the Debenture Trustee in order to raise funds to pay interest on the 2012 Debentures, in which event
the holders of the 2012 Debentures will be entitled to receive a cash payment equal to the interest payable from the
proceeds of the sale of such units.
MORTGAGES PAYABLE
TABLE 37
June 30,
December 31,
2015
2014
$1,198,707
$1,216,585
As at
Mortgages payable before financing costs
Premium on acquired debt
4
Deferred financing costs
11
(3,650)
Mortgages payable
(4,035)
$1,195,061
$1,212,561
A complete reconciliation of mortgages payable discussed in this MD&A to mortgages payable per the condensed
consolidated financial statements is provided in Part X.
DEBT MATURITY PROFILE
Management attempts to stagger the maturities of the Trust’s fixed-rate debt with the general objective of achieving
even annual maturities over a 10-year time horizon. The intention of this strategy is to reduce the Trust’s exposure to
interest rate fluctuations in any one period.
The following tables outline the aggregate principal repayment for mortgages payable and convertible debentures, as
at June 30, 2015, together with the weighted average contractual rate on debt maturing in the years indicated. Also
highlighted are the Trust’s primary sources of lending, by year of maturities, and the Trust’s up-financing opportunity in
relation to the fair value of encumbered properties relative to their respective maturing debt.
AGGREGATE MATURITIES
TABLE 38
Year
Mortgage
Maturity
Payments
Scheduled
Principal
Repayments
Total
Mortgages
Payable
Weighted
Average
Interest Rate
2015
$36,925
$17,927
$54,852
5.41%
$—
—%
$54,852
5.41%
2016
50,485
33,954
84,439
4.03%
—
—%
84,439
4.03%
2017
50,289
33,623
83,912
4.52%
149,985
4.85%
233,897
4.76%
2018
55,464
31,639
87,103
4.46%
—
—%
87,103
4.46%
2019
162,122
26,191
188,313
3.63%
—
—%
188,313
3.63%
Thereafter
634,374
65,714
700,088
4.23%
—
—%
700,088
4.23%
Total
$989,659
$209,048
$1,198,707
4.19%
$149,985
4.85%
$1,348,692
4.26%
Debentures
Payable
Weighted
Average
Interest Rate
Total Debt
Maturities
Weighted
Average
Interest Rate
With weighted average interest rates of 5.41% on mortgages maturing in 2015, the Trust has an opportunity in 2015 to
lower the overall interest rate on approximately $37 million of maturing debt. The weighted average interest rate at
June 30, 2015 was 4.19%.
At June 30, 2015, the Trust’s weighted average term to maturity for mortgages payable is 5.5 years.
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PRINCIPAL MATURITIES BY TYPE OF LENDER, BY YEAR OF MATURITY
TABLE 39
Year
Banks
Insurance Industry
Pension Funds
Unsecured Debentures
Total
2015
$28,531
2016
1,489
$8,394
$—
$—
$36,925
34,933
14,063
—
2017
50,485
—
12,944
37,345
149,985
200,274
2018
—
55,464
—
—
55,464
2019
129,640
32,482
—
—
162,122
Thereafter
281,998
251,393
100,983
—
634,374
$441,658
$395,610
$152,391
$149,985
$1,139,644
The Trust maintains strategic relationships with banks, insurance companies and pension funds to reduce its
exposure to any one lending group.
The 2012 Debentures maturing in 2017 have certain redemption rights commencing November 2016 (see Convertible
Debentures Payable).
FAIR VALUE OF ENCUMBERED PROPERTIES RELATIVE TO MATURING DEBT
TABLE 40
Year
Mortgage Maturity
Payments
Scheduled Principal
Repayments
Total
Fair Value of
Encumbered Assets
2015
$36,925
$461
$37,386
$120,000
31%
2016
50,485
2,651
53,136
169,200
31%
2017
50,289
3,755
54,044
113,850
47%
2018
55,464
10,726
66,190
238,000
28%
2019
162,122
20,230
182,352
398,460
46%
Thereafter
634,374
171,225
805,599
1,673,930
48%
$989,659
$209,048
$1,198,707
$2,713,440
44%
Leverage
Given current real estate values, the Trust has an opportunity during the remainder of 2015 to increase financing as
debt matures and still maintain the targeted loan to value ratio of 50%.
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DEBT AND LEVERAGE METRICS
TABLE 41
For the six months ended
For the twelve months ended
June 30, 2015
December 31, 2014
Interest coverage ratio (i)
2.72
2.65
Debt service coverage ratio (ii)
1.71
1.72
45.3%
45.7%
Debt ratio (iii)
Weighted average rates on mortgages
4.2%
4.2%
Average term to maturity on mortgages (years)
5.46
5.95
Distributions as a percentage of Adjusted Funds From Operations
80.0%
68.6%
Unencumbered assets to unsecured debt
57.6%
60.6%
Unencumbered assets
Unsecured debt
$86,370
$90,900
$149,985
$149,985
(i)
Interest coverage defined as: Net income before taxes, amortization and fair value changes for the period, divided by total interest expense at the Trust's share (including interest that has
been capitalized).
(ii)
Debt service coverage defined as: Net income before taxes, amortization and fair value changes for the period, divided by total interest expense at the Trust's share
(Including interest that has been capitalized), and scheduled mortgage principal repayments.
(iii)
Debt ratio defined as: Total gross book value, divided by total indebtedness.
Improvements were shown in certain of the Trust’s key ratios and leverage metrics for the six months ended June 30,
2015, in comparison to the results for the year ended December 31, 2014. Both interest coverage and debt ratios
showed modest improvements during the period. This is the continuing effect of the completed 2014 refinancing
program. The weighted average rate on mortgages remained stable at 4.2%, with no maturing debt or other financing
activity occurring during the period.
CREDIT FACILITIES
As at June 30, 2015, the Trust has secured floating rate bank financing availability totaling $70 million, which renews
annually and is secured by fixed charges on specific properties owned by the Trust. The bank credit agreements
include certain restrictive covenants and undertakings by the Trust. As at June 30, 2015, the Trust was in compliance
with all covenants and undertakings. The Trust has a revolving unsecured loan agreement with Morguard that
provides for borrowings or advances of up to $50 million.
CREDIT FACILITIES
TABLE 42
As at
Bank credit facilities and operating lines
Revolving loan agreement with Morguard
Amounts drawn against credit facilities
June 30,
December 31,
2015
2014
$70,000
$70,000
50,000
50,000
120,000
120,000
(290)
$119,710
MORGUARD.COM
(5,217)
$114,783
27
PART VII
RISKS AND UNCERTAINTIES
All real estate investments are subject to a degree of risk and uncertainty. Income producing property is affected by
various factors, including general economic conditions and local market circumstances. Local business conditions
such as oversupply of space or a reduction in demand particularly affect income property investments. Management
attempts to manage these risks through geographic and asset class diversification. At June 30, 2015, the Trust held
49 properties in three assets classes (retail, office and other) and located in six provinces. The Trust is exposed to
other risks as outlined below.
INTEREST RATE AND FINANCING RISK
The Trust is exposed to financial risks that arise from its indebtedness, including fluctuations in interest rates. Interest
rate risk is managed by financing debt at fixed rates with maturities scheduled over a number of years. At June 30,
2015, 100.0% of the Trust’s debt was at fixed rates.
As outlined under “Liquidity and Capital Resources”, the Trust has an ongoing requirement to access debt markets to
refinance maturing debt as it comes due. There is a risk that lenders will not refinance such maturing debt on terms
and conditions acceptable to the Trust, or any terms at all.
The Declaration of Trust permits the Trust to incur indebtedness, provided that after giving effect to incurring or
assuming any indebtedness the amount of all indebtedness of the Trust is not more than 60% of the gross book value
of the Trust’s total assets.
The following table provides the Trust’s debt ratios compared to the borrowing limits established in the Declaration of
Trust:
DEBT RATIOS
TABLE 43
As at
Fixed-rate debt to gross book value of total assets
Borrowing Limits
June 30,
December 31,
2015
2014
45.5%
—%
45.3%
Floating-rate debt to gross book value of total assets
15.0%
—%
0.2%
Total indebtedness to gross book value of total assets
60.0%
45.3%
45.7%
CREDIT RISK
Credit risk arises from the possibility that tenants may be unable to fulfill their lease commitments. Management
mitigates this risk by ensuring that the Trust’s tenant mix is diversified and by limiting the Trust’s exposure to any one
tenant.
LEASE ROLLOVER RISK
Lease rollover risk arises from the possibility that the Trust may experience difficulty renewing leases as they expire or
in re-leasing space vacated by tenants upon lease expiry. Management attempts to stagger the lease expiry profile so
that the Trust is not faced with disproportionate amounts of space expiring in any one year. Management further
mitigates this risk by maintaining a diversified portfolio mix by both asset type and geography.
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TABLE 44
Retail
% of
Portfolio
Sq. Ft.
Office
Weighted
Average
Contract
Rent
Sq. Ft.
Other
Weighted
Average
Contract
Rent
% of
Portfolio
Sq. Ft.
% of
Portfolio
Weighted
Average
Contract
Rent
352,388
7.4%
$21.88
52,230
1.5%
$19.88
8,520
2.5%
$9.29
2016
653,380
13.7%
15.68
318,901
9.1%
21.57
10,375
3.1%
10.41
2017
370,495
7.8%
27.86
283,017
8.0%
23.08
34,729
10.3%
11.12
2018
390,841
8.2%
26.42
179,376
5.1%
22.58
15,067
4.5%
10.83
Thereafter
2,436,308
50.9%
20.76
2,550,752
72.5%
22.87
267,043
79.0%
5.97
Current vacancy
571,542
12.0%
—
132,553
3.8%
—
1,900
0.6%
—
4,774,954
100.0%
$21.18
3,516,829
100.0%
$22.71
337,634
100.0%
$6.94
Total
REMAINING 2015 EXPIRIES BY GEOGRAPHY (NET OF RENEWALS):
TABLE 45
Retail
Office
Weighted Average
Sq. Ft.
Contract Rent
British Columbia
Other
Weighted Average
Sq. Ft.
Contract Rent
Sq. Ft.
Weighted Average
Contract Rent
Total
9,408
$18.83
263
$15.00
—
$—
9,671
Alberta
65,624
20.99
33,392
20.80
—
—
99,016
Saskatchewan
82,175
13.77
—
—
—
—
82,175
Manitoba
63,123
25.35
—
—
—
—
63,123
Ontario
132,058
27.24
12,171
19.67
8,520
9.29
152,749
Quebec
—
—
6,404
15.72
—
—
6,404
352,388
$21.88
52,230
$19.88
8,520
$9.29
413,138
Total
ENVIRONMENTAL RISK
The Trust is subject to various federal, provincial and municipal laws relating to the environment. The Trust’s ongoing
environmental management program includes regular review of tenant business uses and inspections of properties to
ensure compliance, as well as appropriate testing by qualified environmental consultants when required. A Phase I
environmental site assessment is performed on properties considered for acquisition. The Trust mitigates the cost of
remediation by carrying environmental insurance where available.
UNITHOLDER LIABILITY
The Declaration of Trust provides that no unitholder or annuitant under a plan of which a unitholder acts as trustee or
carrier will be held to have any personal liability as such and that no recourse may be had to the private property of
any unitholder or annuitant for satisfaction of any obligation or claim arising out of or in connection with any contract or
obligation of the Trust. Only assets of the Trust are intended to be liable and subject to levy or execution.
The following provinces have legislation relating to unitholder liability protection: British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario and Quebec. Certain of these statutes have not yet been judicially considered, and
it is possible that reliance on such statute by a unitholder could be successfully challenged on jurisdictional or other
grounds. The Trustees will cause the operations of the Trust to be conducted, with the advice of counsel, in a manner
and in such jurisdictions so as to avoid, as far as practicable, any material risk of liability to the unitholders for claims
against the Trust. The Trustees will also cause the Trust to carry insurance, to the extent to which they determine to
be possible and reasonable, for the benefit of unitholders and annuitants in such amounts as they consider adequate
to cover non-contractual or non-excluded liability.
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GENERAL UNINSURED LOSSES
The Trust has in place blanket comprehensive general liability, fire, flood, extended coverage and rental loss
insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are,
however, certain types of risks (generally of a catastrophic nature such as from wars or environmental contamination)
that are either uninsurable or not insurable on an economically viable basis. The Trust also carries insurance for
earthquake risks, where appropriate, subject to certain policy limits, deductibles and self-insurance arrangements, and
will continue to carry such insurance if it is economical to do so. Should an insured or underinsured loss occur, the
Trust could lose its investment in, and anticipated profits and cash flows from, one or more of its properties.
AVAILABILITY OF CASH FLOW
From time to time, because of items such as debt repayments and discretionary capital expenditures incurred to
enhance the real estate portfolio, adjusted funds from operations may be less than the actual cash required by the
Trust. In these situations, The Trust may use part of its debt capacity or reduce distributions in order to meet its
obligations.
UNITS OUTSTANDING
Under the Declaration of Trust, the Trust is authorized to issue an unlimited number of units. Each unit represents an
equal interest in the Trust together with all outstanding units. All units have equal voting rights at meetings held by the
Trust. As at August 5, 2015, the Trust had 61,823,925 units outstanding (62,167,654 – December 31, 2014). This
includes the Trust’s participation as part of the Normal Course Issuer Bid for 2015 of 362,119 units, which were
purchased for cancellation.
UNITHOLDER TAXATION
The Trust is taxed as a “mutual fund trust” for income tax purposes. Under Part I of the Act, a Trust is not subject to
income taxes to the extent that the income for tax purposes in a given year does not exceed the amount distributed to
unitholders and deducted by the Trust for tax purposes. The Trustees intend to distribute or designate all taxable
income directly earned by the Trust to unitholders of the Trust and to deduct such distributions and designations for
income tax purposes. Accordingly, in prior years the Trust has not been required to record a provision for income
taxes.
Legislation relating to the federal income taxation of a “specified investment flow-through” (“SIFT”) trust or partnership
passed third reading on June 12, 2007, and was subsequently enacted June 22, 2007. Under the SIFT rules, certain
distributions attributable to a SIFT will not be deductible in computing the SIFT’s taxable income, and the SIFT will be
subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to
Canadian corporations. Distributions paid by a SIFT as returns of capital will not be subject to this tax. The new
taxation regime did not apply to the Trust prior to 2011 due to transitional relief available to certain SIFTs that were
publicly listed before November 1, 2006.
Under the SIFT rules, the new taxation regime will not apply to a trust that meets prescribed conditions relating to the
nature of its income and investments (“the REIT exception”). The Trust has reviewed its status under the legislation
and has determined that it is not subject to this tax as it met the REIT exception at December 31, 2014 and
throughout the year. Accordingly, no net additional current income tax expense or future income tax assets or
liabilities have been recorded in the June 30, 2015, condensed consolidated financial statements.
The REIT exception is applied annually. As such, it will not be possible to determine if the Trust will satisfy the
conditions of the REIT exception for 2015 or any subsequent year until the end of the particular year.
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PART VIII
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Trust’s critical accounting policies are those that management believes are the most important in portraying the
Trust’s financial condition and results and that require the most subjective judgment and estimates on the part of
management.
Real estate properties include retail, office and other properties held to earn rental income (income producing
properties) and properties or land that are being constructed or developed for future use as income producing
properties. Real estate properties are recorded at fair value, determined based on available market evidence, at the
balance sheet date. The Trust determined the fair value of each real estate property based upon, among other things,
rental income from current leases and assumptions about rental income from future leases reflecting market
conditions at the applicable balance sheet date, less future cash outflow pertaining to the respective leases. The real
estate properties are appraised using a number of approaches that typically include a discounted cash flow analysis,
direct capitalization method and a direct comparison approach. The discounted cash flow analysis is primarily based
on discounting the expected future cash flows, generally over a term of 10 years and including a terminal value based
on the application of a capitalization rate to estimated year 11 cash flows.
In applying the accounting policies to the real estate properties, judgment is required in determining whether certain
costs are additions to the carrying amount of the property, in distinguishing between tenant incentives and tenant
improvements and for properties under development, identifying the point at which practical completion of the property
occurs and identifying the directly attributable borrowing costs to be included in the carrying value of the development
property. Judgment is also applied in determining the extent and frequency of independent appraisals.
REVENUE RECOGNITION
The computation of cost reimbursements from tenants for realty taxes, insurance and common area maintenance
charges is complex and involves a number of judgments, including the interpretation of terms and other tenant lease
provisions. Tenant leases are not consistent in dealing with such cost reimbursements, and variations in
computations can exist. Adjustments are made throughout the year to these cost recovery revenues based upon the
Trust’s best estimate of the final amounts to be billed and collected.
LEASES
The Trust makes judgments in determining whether certain leases, in particular those leases with long contractual
terms where the lessee is the sole tenant in a property, and long-term ground leases where the Trust is the lessee,
are operating or finance leases. The Trust has determined that all of its tenant leases and long-term ground leases
are operating leases.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management reports on a quarterly basis the fair value of financial instruments. The fair value of financial instruments
approximates amounts at which these instruments could be exchanged between knowledgeable and willing parties.
The estimated fair value may differ in amount from that which could be realized on an immediate settlement of the
instruments. Management estimates the fair value of mortgages payable and convertible debentures payable by
discounting the cash flows of these financial obligations using June 30, 2015 market rates for debts of similar terms.
MORGUARD.COM
31
PART IX
CONTROLS AND PROCEDURES CONCERNING FINANCIAL INFORMATION
The Trust’s management has evaluated the effectiveness of the Trust’s disclosure controls and procedures and based
on such evaluation, has concluded that their design and operation are adequate and effective as at and for the three
and six months ended June 30, 2015.
The financial certification process has been documented and internal controls have effectively been designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. This undertaking has enabled the Chief Executive Officer and Chief
Financial Officer to attest that the design and effectiveness of the internal controls with regard to financial information
are effective. In order to ensure that the condensed consolidated financial statements and MD&A present fairly, in all
material respects, the financial position of the Trust and the results of its operations, management is responsible for
establishing and maintaining disclosure controls and procedures, as well as internal control over financial reporting.
An information disclosure policy constitutes the framework for the information disclosure process with regard to the
annual and interim filings, as well as to the other reports filed or submitted under securities legislation. This policy
aims in particular at identifying material information and validating the related reporting. Morguard’s Disclosure
Committee is responsible for ensuring compliance with this policy for both Morguard and the Trust. Morguard’s and
the Trust’s senior management acts as the Disclosure Committee, ensuring compliance with this policy and reviewing
main documents to be filed with regulatory authorities to ensure that all significant information regarding operations is
communicated in a timely manner.
MORGUARD.COM
32
PART X
RECONCILIATIONS TO THE ISSUED FINANCIAL STATEMENTS
Part X provides the reader with reconciliations of the key performance measures used in this MD&A to the Trust’s
condensed consolidated financial statements.
RECONCILIATION OF NET INCOME PER THE FINANCIAL STATEMENTS
TABLE 46
2015
2014
Variance
2015
2014
Variance
Retail
$20,944
$23,083
($2,139)
$42,998
$44,775
($1,777)
Office
18,728
18,403
37,670
37,155
Other
325
515
590
610
(20)
1,195
1,211
(16)
40,262
42,096
(1,834)
81,863
83,141
(1,278)
Real estate properties acquisitions
340
18
322
682
18
664
Real estate properties held for development
(23)
(8)
(15)
(50)
—
(50)
Net operating income - same assets
Real estate properties held for sale
Net operating income before other adjustments
191
1,249
(1,058)
792
2,559
(1,767)
40,770
43,355
(2,585)
83,287
85,718
(2,431)
110
666
(556)
694
1,351
(657)
OTHER ADJUSTMENTS
Step rents
Lease cancellation fees
223
134
Net operating income from total real estate properties
41,103
44,155
Equity-accounted investments
(1,112)
(1,437)
Net operating income per the financial statements
$39,991
89
(3,052)
325
$42,718
($2,727)
608
127
84,589
87,196
(2,210)
(2,867)
$82,379
$84,329
481
(2,607)
657
($1,950)
RECONCILIATION OF NET INCOME FROM EQUITY-ACCOUNTED INVESTMENTS
TABLE 47
Other expenses
Fair value gains/(losses) on real estate properties
Net income from equity-accounted investments
MORGUARD.COM
2015
2014
Variance
2015
2014
Variance
$1,112
$1,437
($325)
$2,210
$2,867
($657)
(285)
(366)
81
(572)
(726)
28
(39)
67
44
(54)
98
(257)
(405)
148
(528)
(780)
252
$855
$1,032
($177)
$1,682
$2,087
154
($405)
33
RECONCILIATION OF REAL ESTATE PROPERTIES
TABLE 48
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$2,785,885
$62,750
$2,848,635
24,857
—
24,857
27,650
—
27,650
$2,838,392
$62,750
$2,901,142
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$2,822,074
$62,750
$2,884,824
16,511
—
16,511
As at June 30, 2015
As at December 31, 2014
27,650
—
27,650
$2,866,235
$62,750
$2,928,985
Equity-Accounted
Investments
All Properties
RECONCILIATION OF FAIR VALUE (LOSSES)/GAINS ON REAL ESTATE PROPERTIES
TABLE 49
As at June 30, 2015
Total fair value (losses)/gains on real estate properties
Total fair value gains/(losses) on real estate properties
Per Financial
Statements
($56,320)
$44
(142)
—
(142)
($56,462)
$44
($56,418)
Per Financial
Statements
$14,974
(4,005)
270
$11,239
Equity-Accounted
Investments
($3,836)
—
—
($3,836)
($56,276)
All Properties
$11,138
(4,005)
270
$7,403
RECONCILIATION OF MORTGAGES PAYABLE
TABLE 50
As at June 30, 2015
Mortgages payable
Mortgages payable
MORGUARD.COM
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$1,169,040
$29,667
$1,198,707
4
—
(3,650)
—
4
(3,650)
$1,165,394
$29,667
$1,195,061
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$1,186,480
$30,105
$1,216,585
11
—
(4,035)
$1,182,456
—
$30,105
11
(4,035)
$1,212,561
34
RECONCILIATION OF CASH FLOWS
TABLE 51
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$17,759
$607
$18,366
Cash used in financing activities
(35,760)
(220)
(35,980)
For the three months ended June 30, 2015
19,773
(4)
19,769
1,772
383
2,155
13,202
88
13,290
$14,974
$471
$15,445
For the three months ended June 30, 2014
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$22,690
$1,292
$23,982
Cash provided by/(used in) financing activities
Cash used in investing activities
For the six months ended June 30, 2015
19,401
(12,327)
29,764
103
12,681
$43,463
Per Financial
Statements
Equity-Accounted
Investments
All Properties
(59,492)
30,782
$1,121
Cash used in financing activities
1,018
19,133
(12,333)
12,578
$40,734
(6)
$42,342
Cash provided by/(used in) operating activities
Cash provided by investing activities
(268)
($412)
$40,322
(438)
(59,930)
21,120
1,212
2,362
362
2,724
12,612
109
12,721
$14,974
$471
$15,445
Per Financial
Statements
Equity-Accounted
Investments
All Properties
$43,725
$970
$44,695
Cash provided by/(used in) financing activities
1,854
Cash (used in)/provided by investing activities
(16,314)
(533)
9
22,332
1,321
(16,305)
29,265
446
13,077
675
13,752
$42,342
$1,121
$43,463
MORGUARD.COM
29,711
35
PART XI
SUMMARY OF QUARTERLY RESULTS
TABLE 52
The following table provides a summary of quarterly operating results for the last eight quarters.
June 30,
March 31,
December 31,
September 30,
2015
2015
2014
2014
$71,851
$74,730
$77,215
$72,966
28,602
29,483
30,578
28,445
2,337
2,362
2,446
2,333
40,912
42,885
44,191
42,188
Interest expense
14,810
15,068
15,159
15,265
1,128
1,159
1,530
1,230
Other income
Income before fair value (loss)/gains on real estate properties, loss on sale of real
estate properties and net income/(loss) from real estate properties held for sale
Loss on sale of real estate properties
Net income/(loss) from real estate properties held for sale
Net income for the period
(167)
(175)
(207)
(168)
25,141
26,833
27,709
25,861
(45,229)
(11,047)
(6,043)
(5,038)
(22)
(15)
—
—
(129)
237
1,843
($20,217)
$16,023
$23,487
$19,971
(837)
June 30,
March 31,
December 31,
September 30,
2014
2014
2013
2013
$73,233
$73,255
$69,646
$67,193
27,993
29,164
27,676
26,102
2,334
2,361
1,965
2,138
42,906
41,730
40,005
38,953
Interest expense
15,200
15,274
15,014
14,548
1,443
1,225
958
1,382
Amortization expense
—
—
7
10
Other income
—
—
(3)
(1)
26,263
25,231
24,029
23,014
4,163
10,079
25,927
8,158
Income before fair value gains on real estate properties and net income from real
estate properties held for sale
Fair value gains on real estate properties
Net income from real estate properties held for sale
MORGUARD.COM
3,725
963
3,604
508
$34,151
$36,273
$53,560
$31,680
36
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | JUNE 30, 2015
BALANCE SHEETS
In thousands of Canadian dollars
As at
June 30,
December 31,
2015
2014
3
4
$2,838,392
32,577
2,870,969
$2,866,235
30,770
2,897,005
10(b)
33,516
11,303
14,974
59,793
9,600
$2,940,362
42,635
1,054
12,612
56,301
63,190
$3,016,496
6
7
$1,061,070
147,118
3,526
1,211,714
$1,111,360
146,541
4,111
1,262,012
6
104,324
51,078
—
155,402
5,433
71,096
41,650
4,927
117,673
29,730
1,372,549
1,567,813
$2,940,362
1,409,415
1,607,081
$3,016,496
Notes
ASSETS
Non-current assets
Real estate properties
Equity-accounted investments
Current assets
Amounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Real estate properties held for sale
Total assets
17
LIABILITIES AND UNITHOLDERS’ EQUITY
Non-current liabilities
Mortgages payable
Other liabilities
Current liabilities
Mortgages payable
Accounts payable and accrued liabilities
Bank indebtedness
8
Mortgages payable on real estate properties held for sale
17
Total liabilities
Unitholders' equity
12
Commitments and contingencies
14
See accompanying notes to the condensed consolidated financial statements.
On behalf of the Trustees:
David King,
Chairman of the Board of Trustees
MORGUARD.COM
Edward Kress,
Trustee
37
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
In thousands of Canadian dollars, except per-unit amounts
Three months ended
Interest expense
Other income
June 30,
June 30,
June 30,
June 30,
Notes
2015
2014
2015
2014
11(a)
10(a)
$70,701
28,402
2,308
39,991
$73,925
28,832
2,375
42,718
$145,243
58,194
4,670
82,379
$148,129
59,016
4,784
84,329
9
11(b)
Income before fair value (losses)/gains and net
income from equity-accounted investments
Fair value (losses)/gains on real estate properties, net
Six months ended
3
4
14,807
1,128
(167)
15,334
1,433
—
29,848
2,287
(342)
30,746
2,662
—
24,223
25,951
50,586
50,921
(45,295)
855
(20,217)
7,168
1,032
34,151
(56,462)
1,682
(4,194)
17,416
2,087
70,424
256
($19,961)
252
$34,403
511
($3,683)
503
$70,927
($0.33)
($0.33)
$0.55
$0.51
($0.07)
($0.07)
$1.13
$1.05
OTHER COMPREHENSIVE INCOME
Items to be reclassified to profit or loss in subsequent
periods:
Amortization – cash flow hedges
Comprehensive (loss)/income
NET (LOSS)/INCOME PER-UNIT
Basic
Diluted
12(d)
MORGUARD.COM
38
STATEMENT OF UNITHOLDERS' EQUITY
In thousands of Canadian dollars, except number of units
Number
of Units
Issue
of Units
62,221,836
$625,824
—
Distributions to unitholders
—
Balance, at January 1, 2014
Issue of units – DRIP
Balance, at March 31, 2014
Repurchase of units
Equity
Accumulated
Component
Other
Retained of Convertible Contributed Comprehensive
Earnings
Debentures
Surplus
Loss
$927,184
$1,526
$338
—
36,273
—
—
—
36,273
—
(14,794)
—
—
—
(14,794)
8,528
140
(140)
—
—
—
—
—
—
—
—
—
251
251
62,230,364
625,964
948,523
1,526
338
(100,000)
(667)
(1,883)
$1,552,738
1,574,468
—
—
—
(1,673)
—
34,151
—
—
—
34,151
—
—
(14,713)
—
—
—
(14,713)
12,223
208
(208)
—
—
—
252
—
(1,006)
($2,134)
Total
Unitholders’
Equity
—
—
—
—
—
—
62,142,587
625,166
967,086
1,526
338
609
15
—
—
—
—
—
—
43,458
—
—
—
43,458
—
—
(29,384)
—
—
—
(29,384)
24,458
443
(443)
—
—
—
—
—
—
—
—
—
507
507
Balance, at December 31, 2014
62,167,654
625,624
980,717
1,526
338
—
—
16,023
—
—
—
16,023
—
—
(14,792)
—
—
—
(14,792)
6,920
125
(125)
—
—
—
—
—
—
—
—
—
255
255
62,174,574
625,749
981,823
1,526
338
Balance, at June 30, 2014
Debentures converted
Balance, at March 31, 2015
Repurchase of units
Net loss for the period
Balance, at June 30, 2015
(362,119)
(1,124)
(869)
252
1,592,485
15
1,607,081
1,608,567
(2,384)
—
—
—
(6,025)
—
(20,217)
—
—
—
(20,217)
—
—
(14,768)
—
—
—
(14,768)
8,480
144
(144)
—
—
—
256
—
(3,641)
(1,631)
—
—
—
—
—
61,820,935
$622,252
$944,310
$1,526
$338
($613)
—
256
$1,567,813
MORGUARD.COM
39
STATEMENT OF CASH FLOW
In thousands of Canadian dollars
Three months ended
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
Notes
OPERATING ACTIVITIES
($20,217)
Items not affecting cash
13(a)
(Contributions)/distributions from equity-accounted investments
4
Deferred leasing cost additions
Tenant incentive additions
Net change in non-cash operating assets and liabilities
13(b)
45,094
(714)
(1,273)
(19)
$34,151
(8,056)
166
(1,002)
—
($4,194)
$70,424
54,809
(19,230)
(125)
843
(2,321)
(1,732)
(178)
(86)
(5,112)
(2,569)
(7,257)
(6,494)
17,759
22,690
40,734
43,725
—
206,786
—
269,177
—
(96,629)
—
(219,157)
FINANCING ACTIVITIES
Proceeds from new mortgages
Repayment of principal
Repayments on maturity
Repayment due to early extinguishment of mortgage
Principal instalment repayments
Amortization of fair value adjustments
Financing cost on new mortgages
Decrease in bank indebtedness
Issue of loan payable
Repayment of loan payable
Units repurchased for cancellation
Cash (used in)/provided by financing activities
(6,125)
—
(6,125)
—
(8,839)
(8,174)
(17,818)
(15,879)
(3)
(33)
(7)
(122)
—
(830)
—
(964)
8
—
(15,333)
10(b)
—
10(b)
—
—
(50,000)
(4,927)
(5,000)
—
60,000
—
(60,000)
(14,768)
(14,713)
(24,590)
(24,528)
(6,025)
(1,673)
(6,025)
(1,673)
(35,760)
19,401
(59,492)
1,854
INVESTING ACTIVITIES
Acquisition of loan receivable
Settlement of loan receivable
Capital expenditures on real estate properties
Acquisition of real estate properties
Net proceeds from sale of real estate properties
Net change in cash and cash equivalents during the period
10(b)
—
—
(5,000)
—
10(b)
15,000
—
15,000
—
13(b)
(9,653)
(8,152)
(1,474)
(4,175)
15,900
—
(23,061)
(12,139)
(1,474)
(4,175)
35,655
—
19,773
(12,327)
21,120
(16,314)
1,772
29,764
2,362
29,265
13,202
12,578
12,612
13,077
$14,974
$42,342
$14,974
$42,342
MORGUARD.COM
40
NOTES
For the three months and six months ended June 30, 2015
In thousands of Canadian dollars, except unit, per-unit amounts and where otherwise noted
NOTE 1
NATURE AND DESCRIPTION OF THE TRUST
Morguard Real Estate Investment Trust (“the Trust”) is a “closed-end” real estate investment trust established on June
18, 1997, under the laws of the Province of Ontario. The Trust commenced active operations on October 14, 1997.
The Trust owns a diverse portfolio of retail, office and other commercial properties located in six Canadian provinces.
The Trust’s head office is located at 55 City Centre Drive, Suite 1000, Mississauga, Ontario, L5B 1M3.
The Trust has a property management agreement with Morguard Investments Limited (“MIL”), a subsidiary of
Morguard Corporation (“Morguard”). Morguard is the parent company of the trust, owning 47.42% of the outstanding
units, as at June 30, 2015. Morguard is a real estate company, which owns a diversified portfolio of multi-unit
residential, retail, hotel, office and industrial properties. Morguard also provides advisory and management services
to institutional and other investors.
NOTE 2
STATEMENT OF COMPLIANCE AND SIGNIFICANT ACCOUNTING POLICIES
These condensed consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) IAS 34, "Interim Financial Reporting", as issued by the International Accounting
Standards Board ("IASB") and thus do not contain all of the disclosures applicable to the annual audited consolidated
financial statements. These condensed consolidated financial statements use the same accounting policies and
methods of their application as the most recent annual consolidated financial statements and should be read in
conjunction with the most recent annual audited consolidated financial statements.
The condensed consolidated financial statements were approved and authorized for issue by the Board of Trustees
on August 5, 2015.
NOTE 3
Real estate properties consist of the following:
June 30,
As at
MORGUARD.COM
December 31,
2015
2014
$2,785,885
24,857
27,650
$2,822,074
16,511
27,650
$2,838,392
$2,866,235
41
Reconciliations of the carrying amounts for real estate properties at the beginning and end of the current financial
period are set out below:
As at June 30, 2015
Balance as at December 31, 2014
Additions:
Acquisitions and investments
Capital expenditures/capitalized costs
Tenant improvements, tenant incentives and commissions
Reclassifications
Fair value losses
Other changes
Balance as at June 30, 2015
Additions:
Acquisitions and investments
Capital expenditures/capitalized costs
Tenant improvements, tenant incentives and commissions
Reclassifications
Reclassification to properties held for sale
Reclassification from equity-accounted investments
Disposition
Fair value gains/(losses)
Other changes
Income
Properties
Land
Producing
Under
Held for
Properties Development Development
Total
Real Estate
Properties
$2,822,074
$16,511
$27,650 $2,866,235
1,474
7,998
7,572
1,604
(56,320)
1,483
$2,785,885
—
9,950
—
(1,604)
—
—
$24,857
—
1,474
—
17,948
—
7,572
—
—
—
(56,320)
—
1,483
$27,650 $2,838,392
Income
Producing
Properties
Properties
Under
Development
Land
Held for
Development
Total
Real Estate
Properties
$2,831,269
$20,839
$17,250 $2,869,358
23,935
15,228
11,512
(6,520)
(48,540)
19,000
(41,042)
14,974
2,258
$2,822,074
—
17,937
—
(3,610)
(14,650)
—
—
(4,005)
—
$16,511
—
23,935
—
33,165
—
11,512
10,130
—
—
(63,190)
—
19,000
—
(41,042)
270
11,239
—
2,258
$27,650 $2,866,235
Generally, the Trust’s real estate properties are appraised using a number of approaches that typically include a
discounted cash flow analysis, a direct capitalization approach and a direct comparison approach. The primary
method of valuation used by the Trust is discounted cash flows. This approach involves determining the fair value of
each income producing property based on, among other things, rental income from current leases and assumptions
about rental income from future leases reflecting market conditions at the applicable consolidated balance sheet
dates, less future cash outflows pertaining to the respective leases. Fair values are primarily determined by
discounting the expected future cash flows, generally over a term of 10 years and including a terminal value based on
the application of a capitalization rate to estimated year 11 net operating income.
MORGUARD.COM
42
The table below provides further details of the average discount rate and terminal cap rate by business segments:
June 30, 2015
Maximum
Minimum
December 31, 2014
Weighted
Average
Maximum
Minimum
Weighted
Average
RETAIL
Discount rate
Terminal cap rate
8.3%
7.8%
6.0%
5.3%
6.8%
6.0%
8.5%
7.8%
6.0%
5.3%
6.8%
6.0%
8.0%
7.5%
6.0%
5.3%
6.8%
6.1%
7.8%
7.5%
6.0%
5.3%
6.8%
6.0%
7.8%
7.5%
7.0%
6.5%
7.5%
7.0%
7.5%
7.3%
7.0%
6.5%
7.4%
6.9%
OFFICE
Discount rate
Terminal cap rate
OTHER
Discount rate
Terminal cap rate
Using the direct capitalization income approach to corroborate the discounted cash flow method, the properties were
valued using capitalization rates in the range of 5.0% to 7.5% applied to a stabilized net operating income
(December 31, 2014 – 5.0% to 7.5%), resulting in an overall weighted average capitalization rate of 5.9%
(December 31, 2014 – 5.8%). The total stabilized annual net operating income as at June 30, 2015, was $164,571
(December 31, 2014 – $165,736). Values are most sensitive to changes in discount rates, capitalization rates and
timing or variability of cash flow.
Excluded from the above analysis is a retail property located in British Columbia, where the highest and best use is a
redevelopment to mixed residential and commercial use that has been valued accordingly. As at June 30, 2015, the
discount rate for this property was 3.5% (December 31, 2014 – 3.5%) and the terminal cap rate was 3.0%
(December 31, 2014 – 3.0%).
Dispositions
The following table provides details of dispositions completed by the Trust during the reporting period:
Net
Date
Property
Property Name
Sold
Type
20-24 Lesmill, ON
May 15, 2015
Other
27,577
5591-5631 Finch, ON
April 1, 2015
Other
210,123
350 Sparks/361 Queen, ON
February 17, 2015
Office/Other
86,372
Cedar Pointe Business Park, ON
July 2, 2014
Office
350,797
GLA
Sale
Mortgage
Operating
Price
Payable
Income
$6,350
$—
$127
$10,000
$6,125
$177
$37,692
$17,835
$150
$41,900
$13,800
$1,218
Acquisitions
On June 4, 2014, the Trust and a major Canadian pension fund, each acquired a 50% interest in a 35,000 square foot
office building, located in Ottawa, Ontario for a total purchase price of $4,037 plus other acquisition costs of $128.
The Trust accounted for the purchase as an asset acquisition.
The allocation of the total cost for the Trust’s 50% acquisition is as follows:
Total acquisition costs:
Purchase price – cash
Transaction costs
Total purchase price
MORGUARD.COM
$4,037
128
$4,165
43
On July 25, 2014, the Trust acquired the remaining 50% interest in a limited partnership that owns and operates a
78,000 square-foot class A office complex located in Calgary, Alberta, for a total purchase price of $19,000 plus other
costs of $77. The Trust accounted for the purchase as a business combination.
The allocation of the total cost for the Trust’s acquisition is as follows:
Total acquisition costs:
Purchase price – cash
Purchase price – assumed working capital
Other costs
Total purchase price
$11,549
7,451
77
$19,077
NOTE 4
EQUITY-ACCOUNTED INVESTMENTS
On December 22, 2011, the Trust and a major Canadian pension fund each acquired a 50% interest in a limited
partnership that owns and operates a 304,000 square foot class A office complex located in downtown Edmonton,
Alberta, in which the Trust has a total original net investment of $28,008. The Trust has joint control over the limited
partnership and accounts for its investment using the equity method.
On December 22, 2011, the Trust and a major Canadian pension fund each acquired a 50% interest in a limited
partnership that owns and operates a 78,000 square foot class A office complex located in Calgary, Alberta, in which
the Trust had a total original net investment of $8,666. The Trust had joint control over the limited partnership and
accounted for its investment using the equity method. The Trust acquired the remaining 50% interest in this limited
partnership on July 25, 2014, and consolidates its 100% interest.
As at
Balance, beginning of period
Equity income/(loss)
Distributions to partners
Contributions from partners
Reclassification adjustments on purchase:
Mortgages payable
Working capital
Balance, end of period
June 30,
December 31,
2015
2014
$30,770
$44,857
1,682
(1,095)
1,220
(20)
(2,518)
—
—
—
—
$32,577
(19,000)
7,581
(130)
$30,770
The following details the Trust’s share of the limited partnerships' aggregated assets, liabilities and results of
operations accounted for under the equity method for the following periods:
June 30,
December 31,
2015
2014
Current assets
Total assets
$62,750
722
$63,472
$62,750
294
$63,044
Non-current liabilities
Current liabilities
Total liabilities
$28,770
2,125
$30,895
$29,225
3,049
$32,274
As at
MORGUARD.COM
44
Three months ended
Other expenses
Fair value gains/(losses) on real estate properties
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
$1,623
511
1,112
$2,192
755
1,437
$3,274
1,064
2,210
$4,293
1,426
2,867
(366)
(39)
$1,032
(572)
44
$1,682
(726)
(54)
$2,087
(285)
28
$855
NOTE 5
CO-OWNERSHIP INTERESTS
The Trust is a co-owner in several properties, listed below, that are subject to joint control based on the Trust's
decision-making authority with regards to the relevant activities of the properties. These co-ownerships have been
classified as joint operations and, accordingly, the Trust recognizes its rights to and obligations for the assets,
liabilities, revenue and expenses of these co-ownerships in the respective lines in the condensed consolidated
financial statements.
Property
Trust's Ownership Share
Jointly Controlled Operations
Location
Type
505 Third Street
Scotia Place
Calgary, AB
Edmonton, AB
Grande Prairie, AB
Ottawa, ON
Ottawa, ON
Toronto, ON
Woodbridge, ON
Salaberry-de-Valleyfield, QC
St. Laurent, QC
Office
Office
Retail
Office
Office
Office
Retail
Other
Office
50%
20%
50%
50%
50%
50%
50%
50%
50%
50%
20%
50%
50%
50%
50%
50%
50%
50%
Ottawa, ON
Ottawa, ON
Office
Other
—
—
50%
50%
Prairie Mall
Heritage Place
Standard Life Centre
77 Bloor
Woodbridge Square
825 Des Erables
Place Innovation
2015
2014
Dispositions (see note 3 and 17)
350 Sparks
361 Queen
The following amounts, included in these condensed consolidated financial statements, represent the Trust’s
proportionate share of the assets and liabilities of the 9 co-ownerships as at June 30, 2015, and the 11 co-ownerships
as at December 31, 2014, and the results of operations for the three and six months ended June 30, 2015, and
June 30, 2014:
June 30,
As at
Assets
Assets – properties held for sale
Liabilities
Liabilities – properties held for sale
MORGUARD.COM
December 31,
2015
2014
$485,766
—
198,999
—
$483,792
38,531
199,192
18,803
45
Three months ended
Revenue
Expenses
Income before fair value adjustments
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
$13,383
8,363
5,020
(7,612)
($2,592)
$14,161
8,860
5,301
41
$5,342
$27,624
17,301
10,323
(7,251)
$3,072
$28,186
17,727
10,459
(2,857)
$7,602
NOTE 6
MORTGAGES PAYABLE
Mortgages payable consist of the following:
June 30,
December 31,
2015
2014
Mortgages payable before deferred financing costs
$1,169,040
$1,186,480
Mortgages payable
4
(3,650)
$1,165,394
11
(4,035)
$1,182,456
Mortgages payable – non-current
Mortgages payable – current
Mortgages payable
$1,061,070
104,324
$1,165,394
$1,111,360
71,096
$1,182,456
As at
The aggregate principal repayments and balances maturing on the mortgages payable as at June 30, 2015, together
with the weighted average contractual rate on debt maturing in the year indicated, are as follows:
2015 (remainder of year)
2016
2017
2018
2019
Thereafter
Principal
Instalment
Repayments
Balances
Maturing
$17,481
33,035
32,668
30,648
25,161
64,914
$203,907
$36,925
50,485
50,289
55,464
162,122
609,848
$965,133
Weighted Average
Contractual Rate on
Total
Balance Maturing
$54,406
83,520
82,957
86,112
187,283
674,762
$1,169,040
5.4%
4.0%
4.5%
4.4%
3.6%
4.2%
4.2%
Substantially all of the Trust’s rental properties and related rental revenues have been pledged as collateral for the
mortgages payable.
NOTE 7
CONVERTIBLE DEBENTURES PAYABLE
2012 Debentures
On October 31, 2012, the Trust issued a $150,000 principal amount of 4.85% convertible unsecured subordinated
Debentures (“2012 Debentures”) maturing on October 31, 2017 (the “Maturity Date”), of which a $50,000 principal
amount was purchased by Morguard at the offering price.
Interest is payable semi-annually, not in advance, on April 30 and October 31 of each year, commencing on April 30,
2013.
MORGUARD.COM
46
The Trust’s convertible debentures, with the exception of the value assigned to the holders’ conversion option, have
been recorded as debt on the consolidated balance sheets. The following table summarizes the allocation of the
principal amount and related issue costs of the debentures at the date of original issue. The portion of issue costs
attributable to the liability of $4,183 has been capitalized and will be amortized over the term to maturity, while the
remaining amount of $45 has been charged to equity.
Transaction Date
Principal
Amount Issued
October 31, 2012
Issue costs
$150,000
(4,228)
$145,772
Liability
Equity
$148,428
(4,183)
$144,245
$1,572
(45)
$1,527
Each 2012 Debenture is convertible into freely tradable units of the Trust at the option of the holder, exercisable at any
time prior to the close of business on the last business day preceding the maturity date at a conversion price of
$24.60 (the “Conversion Price”) per unit being a rate of approximately 40.6504 units per $1,000 principal amount of
2012 Debentures, subject to adjustment.
As at June 30, 2015, $15 (December 31, 2014 – $15) of the 2012 Debentures had been converted into units. The
liability and equity component of these debentures has been included in unitholders’ equity under issue of units.
As at June 30, 2015, the 2012 Debentures payable consist of the following:
As at
Convertible debentures payable – liability
Convertible debentures payable – accretion
Convertible debentures payable before issue costs
Issue costs
June 30,
December 31,
2015
2014
$148,428
788
(15)
149,201
(2,083)
$147,118
$148,428
630
(15)
149,043
(2,502)
$146,541
Interest and principal payments on the 2012 Debentures are as follows:
2015
2016
2017
Interest
Principal
Total
$7,274
7,274
7,274
$21,822
$—
—
149,985
$149,985
$7,274
7,274
157,259
$171,807
Redemption Rights
Each 2012 Debenture is redeemable any time from November 1, 2015, to the close of business on October 31, 2016,
in whole or in part, on at least 30 days' prior notice at a redemption price equal to par plus accrued and unpaid
interest, at the Trust’s sole option provided that the weighted average trading price of the units on the Toronto Stock
Exchange ("TSX") for the 20 consecutive trading days ending five trading days prior to the date on which the notice of
redemption is given is not less than 125% of the conversion price.
From November 1, 2016, to the close of business on October 31, 2017, the 2012 Debentures are redeemable, in
whole or in part, at par plus accrued and unpaid interest, at the Trust’s sole option.
MORGUARD.COM
47
Repayment Options
Payment Upon Redemption or Maturity
The Trust may satisfy its obligation to repay the principal amounts of the 2012 Debentures, in whole or in part, by
delivering units of the Trust. In the event that the Trust elects to satisfy its obligation to repay principal with units of the
Trust, the number of units issued is obtained by dividing the principal amount of the 2012 Debentures by 95% of the
weighted average trading price of the units on the TSX for the 20 consecutive trading days ending five trading days
prior to the date fixed for redemption or the maturity date, as applicable.
Interest Payment Election
The Trust may elect, subject to applicable regulatory approval, to issue and deliver units of the Trust to the Debenture
Trustee in order to raise funds to pay interest on the 2012 Debentures in which event the holders of the 2012
Debentures will be entitled to receive a cash payment equal to the interest payable from the proceeds of the sale of
such units.
NOTE 8
BANK INDEBTEDNESS
The Trust has credit facilities and operating lines of credit totalling $70,000 (December 31, 2014 – $70,000), which
renew annually and are secured by fixed charges on specific properties owned by the Trust.
As at June 30, 2015, the Trust had borrowed $nil (December 31, 2014 – $4,927) and issued letters of credit in
the amount of $290 (December 31, 2014 – $290) related to these facilities.
The bank credit agreements include certain restrictive covenants and undertakings by the Trust. As at June 30, 2015,
and December 31, 2014, the Trust was in compliance with all covenants and undertakings. As the bank indebtedness
is current and at prevailing market rates, the carrying value of the debt as at June 30, 2015, approximates fair value.
MORGUARD.COM
48
NOTE 9
INTEREST EXPENSE
The components of interest expense are as follows:
Three months ended
Interest on mortgages payable
Amortization of deferred financing costs – mortgages
Amortization of premium on acquired debt
Interest on mortgages payable
Interest on convertible debentures payable
Accretion on convertible debentures payable, net
Amortization of deferred financing costs – convertible debentures
Interest on convertible debentures payable
Interest on bank indebtedness
Amortization of cash flow hedges
Interest on loan payable and other
Capitalized interest
Interest on loans payable and other
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
$12,455
199
(3)
12,651
$12,480
182
(33)
12,629
$24,958
426
(7)
25,377
$24,941
357
(122)
25,176
1,813
77
204
2,094
1,814
72
194
2,080
3,607
158
419
4,184
3,608
149
397
4,154
1
66
4
132
256
21
(216)
61
$14,807
252
323
(16)
559
$15,334
511
155
(383)
283
$29,848
503
804
(23)
1,284
$30,746
NOTE 10
RELATED PARTY TRANSACTIONS
With the exception of Note 17, all related party transactions are summarized as follows:
(a) Agreement With Morguard Investments Limited
Under the property management agreement, the Trust pays MIL fees for property management services, capital
expenditure administration, information system support activities and risk management administration. Property
management fees average approximately 3.3% of gross revenue from the income producing properties owned by the
Trust. The management agreement is renewed annually to ensure fees paid reflect fair value for the services
provided. Under a leasing services arrangement, the Trust may, at its option, use MIL for leasing services. Leasing
fees range from 2% to 6% of the total minimum rent of new leases. Fees for the renewal of a lease are half of the
fees for a new lease. Leasing services include lease documentation.
The Trust has employed the services of MIL for the acquisition of properties on a case-by-case basis. Fees are
generally based on the acquisition price of the properties and are capitalized in the case of an asset acquisition. MIL
is a tenant at three of the Trust’s properties. The Trust has employed the services of MIL for the appraisal of its real
estate properties as required for IFRS reporting purposes. Fees are generally based on the size and complexity of
each property and are expensed as part of the Trust’s professional and compliance fees.
MORGUARD.COM
49
During the period, the Trust incurred/(earned) the following:
Three months ended
June 30,
2015
Acquisition fee
Disposition fee
Appraisal/valuation fees
Information services
Leasing fees
Project administration fees
Project management fees
Risk management fees
Internal audit fees
Off-site administrative charges
Rental revenue
$2,325
—
97
101
55
853
180
188
70
35
446
(53)
$4,297
June 30,
2014
$2,414
40
—
94
55
667
140
145
70
36
465
(85)
$4,041
Six months ended
June 30,
June 30,
2015
2014
$4,735
—
97
201
110
1,616
439
341
141
70
923
(124)
$8,549
$4,859
40
—
198
110
1,146
229
188
140
71
949
(169)
$7,761
The following amounts relating to MIL are included in the consolidated balance sheets:
June 30,
December 31,
As at
2015
2014
Accounts payable and accrued liabilities, net
$581
$1,149
(b) Revolving Loan With Morguard
The Trust has a revolving loan agreement with Morguard that provides for borrowings or advances of up to $50,000.
The promissory notes are interest-bearing at the lender’s borrowing rate and are due on demand subject to available
funds. On December 10, 2013, the revolving loan agreement was temporarily amended for a period of 60 days for
either party to borrow up to $90,000 at the same interest rate terms. The temporary amendment expired on February
10, 2014.
Loan Payable to Morguard
During the three and six months ended June 30, 2015, there were no advances or repayments, and as at June 30,
2015, and December 31, 2014, there was no loan payable owing to Morguard. During the three and six months
ended June 30, 2015, the Trust did not incur interest expense on loans payable to Morguard (June 30, 2014 – $287
and $764, respectively).
Loan Receivable From Morguard
During the three months ended June 30, 2015, a gross amount of $nil was advanced to Morguard, and $15,000 was
repaid. During the six months ended June 30, 2015, a gross amount of $5,000 was advanced to Morguard, and
$15,000 was repaid. As at June 30, 2015, the total amount receivable from Morguard was $20,000 (December 31,
2014 – $30,000). For the three months ended June 30, 2015, the Trust earned interest income in the amount of $167
(June 30, 2014 – $nil), and for the six months ended June 30, 2015 interest income amounted to $342 (June 30, 2014
- $nil). As at June 30, 2015, the interest rate on the loan receivable from Morguard was 2.19% (December 31, 2014 –
2.44%).
MORGUARD.COM
50
(c) Sublease With Morguard
The Trust subleases office space from Morguard. For the three months ended June 30, 2015, the Trust incurred rent
expense in the amount of $52 (June 30, 2014 – $48). For the six months ended June 30, 2015, the Trust incurred
rent expense in the amount of $102 (June 30, 2014 – $92).
(d) Stock-Based Compensation With Morguard
Morguard has granted certain officers of the Trust Stock Appreciation Rights ("SARs"), which entitle such officers to
receive a cash payment equal to the excess of the market price of Morguard’s common shares at the time of exercise
over the exercise price of the right. The SARs granted generally vest over 10 years. The fair values of these SARs
are charged to the Trust by Morguard and are recorded as compensation expense by the Trust over their respective
vesting periods. On March 20, 2008, 30,000 SARs were granted at an exercise price of $30.74. As at June 30, 2015,
no further SARs have been granted.
As at June 30, 2015 and December 31, 2014, there were no SARs payable outstanding. For the three months ended
June 30, 2015, the compensation expense amounted to $nil (June 30, 2014 – $351). For the six months ended June
30, 2015, the compensation expense amounted to $nil (June 30, 2014 – $397).
(e) Amounts Receivable From and Accounts Payable to Morguard
Other than the revolving loan, the following additional amounts relating to Morguard are included in the consolidated
balance sheets:
As at
Amounts receivable
Accounts payable
June 30,
December 31,
2015
2014
$7
$11
$—
$8
(f) Rental Revenue From Morguard
Morguard is a tenant in one of the Trust’s properties. For the three months ended June 30, 2015, the Trust earned
rental revenue in the amount of $28 (June 30, 2014 – $26), and for the six months ended June 30, 2015, the Trust
earned rental revenue in the amount of $55 (June 30, 2014 – $52).
NOTE 11
EXPENSES
(a) Property Operating Expenses
Property operating expenses consist of the following:
Three months ended
Property taxes
Repairs and maintenance
Utilities
Other operating expenses
MORGUARD.COM
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
$13,213
6,703
3,923
4,563
$28,402
$12,908
6,952
3,845
5,127
$28,832
$26,715
14,047
8,222
9,210
$58,194
$26,219
14,270
8,769
9,758
$59,016
51
(b) General and Administrative
General and administrative expenses consist of the following:
Three months ended
Trustees’ fees and expenses
Professional and compliance fees
Other administrative expenses
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
$62
425
641
$1,128
$62
366
1,005
$1,433
$130
831
1,326
$2,287
$120
752
1,790
$2,662
NOTE 12
UNITHOLDERS' EQUITY
(a) Units Outstanding
The Trust is authorized to issue an unlimited number of units. The following table summarizes the changes in units for
the period from January 1, 2014, to June 30, 2015:
Year ended
As at
Balance, beginning of period
Distribution reinvestment plan
Repurchase of units
Balance, end of period
June 30,
December 31,
2015
2014
62,167,654
15,400
—
(362,119)
61,820,935
62,221,836
45,209
609
(100,000)
62,167,654
Total distributions recorded, accrued and paid during the six months ended June 30, 2015, amounted to $29,560
(December 31, 2014 – $58,891). On June 15, 2015, the Trust declared a distribution in the amount of $0.08 per unit
for the month of June 2015. This distribution was paid to unitholders on July 15, 2015, prior to the date the
condensed consolidated financial statements were authorized for issue by the Board of Trustees of the Trust. On
July 15, 2015, the Trust declared a distribution of $0.08 per unit payable on August 14, 2015.
(b) Normal Course Issuer Bids
On January 22, 2015, the Trust announced that the TSX had accepted notice filed by the Trust of its intention to make
a normal course issuer bid. The notice provided that during the 12-month period commencing January 28, 2015, and
ending January 27, 2016, the Trust may purchase for cancellation on the TSX up to 3,247,282 units in total, being
approximately 10% of the public float of outstanding units. The daily repurchase restriction for the units is 6,953.
Additionally, the Trust may purchase for cancellation up to $9,999 principal amount of the 2012 Debentures due on
the maturity date, 10% of the public float of outstanding 2012 Debentures. The daily repurchase restriction for the
2012 Debentures is $6. The price that the Trust would pay for any such units or debentures would be the market
price at the time of acquisition.
During the six months ended June 30, 2015, the Trust purchased for cancellation 362,119 units (December 31, 2014 –
100,000 units) for cash consideration of $6,025 (December 31, 2014 – $1,673). The excess of the purchase price of
the units over the average carrying value was $2,384 (December 31, 2014 – $667).
(c) Distribution Reinvestment Plan
Under the Trust’s Distribution Reinvestment Plan (the “DRIP”), unitholders can elect to reinvest cash distributions into
additional units at a weighted average trading price of the units on the TSX for the 20 trading days immediately
preceding the applicable date of distribution. During the six months ended June 30, 2015, the Trust issued 15,400
units under the DRIP (December 31, 2014 – 45,209 units).
MORGUARD.COM
52
(d) Net Income Per-Unit
The following table sets forth the computation of basic and diluted net income per unit:
Three months ended
June 30,
2015
Net (loss)/income – basic
Net (loss)/income – diluted
June 30,
2014
Six months ended
June 30,
2015
June 30,
2014
($20,217)
($18,122)
$34,151
$36,231
($4,194)
($18)
$70,424
$74,578
Weighted average number of units outstanding – basic
Weighted average number of units outstanding – diluted
62,084
68,181
62,138
71,166
62,127
68,224
62,181
71,210
Net (loss)/income per unit – basic
Net (loss)/income per unit – diluted
($0.33)
($0.33)
$0.55
$0.51
($0.07)
($0.07)
$1.13
$1.05
To calculate net income for the calculation of diluted income per unit, interest, accretion and the amortization of
financing costs on convertible debentures outstanding that were expensed during the year are added back to net
income. The weighted average number of units outstanding for the calculation of diluted income per unit is calculated
as if all convertible debentures outstanding as at June 30, 2015, had been converted into units of the Trust at the
beginning of the period.
NOTE 13
CONSOLIDATED STATEMENT OF CASH FLOWS
(a) Items Not Affecting Operating Cash
Three months ended
Fair value losses/(gains) on real estate properties, excluding
properties held for sale
Fair value losses on real estate properties held for sale
Amortized stepped rent
Amortized free rent
Amortization – deferred financing
Amortization – tenant incentive
Amortization – deferred financing costs – convertible debentures
Accretion of convertible debentures
MORGUARD.COM
Six months ended
June 30,
June 30,
June 30,
June 30,
2015
2014
2015
2014
$45,257
38
(855)
(104)
(63)
256
199
85
204
77
$45,094
($7,168)
—
(1,032)
(619)
(10)
252
182
73
194
72
($8,056)
$56,320
142
(1,682)
(677)
(979)
511
426
171
419
158
$54,809
($17,416)
—
(2,087)
(1,261)
(19)
503
357
147
397
149
($19,230)
53
(b) Net Change in Non-Cash Operating Assets and Liabilities
Three months ended
June 30,
2015
June 30,
2014
Six months ended
June 30,
June 30,
2015
2014
Amounts receivable
Prepaid expenses and other assets
Accounts payable, accrued and other liabilities
Net change in non-cash operating assets and liabilities
($193)
(3,930)
(989)
($5,112)
($1,776)
(3,415)
2,622
($2,569)
($881)
(10,249)
3,873
($7,257)
($869)
(10,928)
5,303
($6,494)
Other supplemental cash flow information consists of the following:
Interest paid
Mortgage payable transferred on sale of real estate properties
$16,187
$144
$—
$16,472
$208
$—
$28,908
$269
$17,835
$29,088
$348
$—
NOTE 14
COMMITMENTS AND CONTINGENGIES
(a) Commitments
The Trust has entered into various agreements relating to capital expenditures for its properties. These expenditures
include development of new space, redevelopment or retrofit of existing space, and other capital expenditures.
Should all conditions be met, as at June 30, 2015, committed capital expenditures in the next 12 months are
estimated at $17,500.
The Trust has various other contractual obligations in the normal course of operations. These contracts can be
generally cancelled with 30 days' notice.
(b) Contingencies
The Trust is contingently liable with respect to litigation, claims and environmental matters that arise from time to time,
including those that could result in mandatory damages or other relief, which could result in significant expenditures.
While the outcome of these matters cannot be predicted with certainty, in the opinion of management, any liability that
may arise from such contingencies would not have a material adverse effect on the financial position or results of
operations of the Trust. Any expected settlement of claims in excess of amounts recorded will be charged to
operations as and when such determination is made.
NOTE 15
MANAGEMENT OF CAPITAL
The Trust defines capital that it manages as the aggregate of its unitholders’ equity and interest-bearing debt less
cash and cash equivalents. The Trust’s objective when managing capital is to ensure that the Trust will continue as a
going concern so that it can sustain daily operations and provide adequate returns to its unitholders.
The Trust is subject to risks associated with debt financing, including the possibility that existing mortgages may not
be refinanced or may not be refinanced on as favourable terms or with interest rates as favourable as those of the
existing debt. The Trust mitigates these risks by its continued efforts to stagger the maturity profile of its long-term
debt, to enhance the value of its real estate properties and to maintain high occupancy levels. The Trust manages its
capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of
the underlying assets.
MORGUARD.COM
54
The total managed capital for the Trust is summarized below:
As at
Total mortgages payable (including held for sale)
Bank indebtedness
Cash and cash equivalents
Loan receivable
Unitholders’ equity
Note
10(b)
June 30,
December 31,
2015
2014
$1,170,827
147,118
—
(14,974)
(20,000)
1,567,813
$2,850,784
$1,212,186
146,541
4,927
(12,612)
(30,000)
1,607,081
$2,928,123
The Trust’s Declaration of Trust permits the Trust to incur indebtedness, provided that after giving effect to incurring or
assuming any indebtedness (as defined in the Declaration of Trust), the amount of all indebtedness of the Trust is not
more than 60% of the gross book value of the Trust’s total assets as defined in the Declaration of Trust. The
Declaration of Trust also permits the Trust to incur floating-rate debt, provided that the total amount of all floating-rate
debt of the Trust is not more than 15% of the gross book value of the Trust’s total assets.
The Trust’s debt ratios compared to its borrowing limits established in the Declaration of Trust are outlined in the table
below:
As at
Fixed-rate debt to gross book value of total assets
Floating-rate debt to gross book value of total assets
Total indebtedness to gross book value of total assets
Borrowing Limits
—
15%
60%
June 30,
December 31,
2015
2014
44.8%
—%
44.8%
45.0%
0.2%
45.2%
As at June 30, 2015, the Trust met all externally imposed ratios and minimum equity requirements.
Mortgages Payable
All mortgages payable in place for the Trust are secured against the real property assets and, as a result, have been
relieved from having restrictive financial covenant requirements.
Convertible Debentures Payable
The Trust’s unsecured subordinated convertible debentures payable have no restrictive covenants.
Bank Indebtedness
The Trust’s loan agreements permit the Trust to incur indebtedness. The loan agreements are fixed amounts that
renew annually and are secured by fixed charges on specific properties owned by the Trust.
NOTE 16
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Trust’s financial assets and liabilities comprise cash and cash equivalents, amounts receivable, accounts payable
and accrued liabilities, bank indebtedness, mortgages payable and convertible debentures payable. Fair values of
financial assets and liabilities and discussion of risks associated with financial assets and liabilities are presented as
follows.
Fair Value of Financial Assets and Liabilities
The fair values of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities, bank
indebtedness and loan payable approximate their carrying values due to the short-term maturities of these
instruments.
MORGUARD.COM
55
(a) Mortgages Payable
Mortgages payable are carried at amortized cost using the effective interest rate method of amortization. The
estimated fair values of long-term borrowings are based on market information, where available, or by discounting
future payments of interest and principal at estimated interest rates expected to be available to the Trust at periodend.
The fair value of the mortgages payable has been determined by discounting the cash flows of these financial
obligations using June 30, 2015, market rates for debts of similar terms (Level 2). Based on these assumptions, the
fair value as at June 30, 2015, of the mortgages payable has been estimated at $1,237,407 (December 31, 2014 –
$1,241,108), compared with the carrying value before deferred financing costs and premium on acquired debt of
$1,169,040 (December 31, 2014 – $1,186,480). The fair value of the mortgages payable varies from the carrying
value due to fluctuations in interest rates since their issue.
(b) Convertible Debentures Payable
The fair value of the convertible debentures payable is based on its market trading price (MRT.DB.A:TSX) (Level 1).
As at June 30, 2015, the convertible debentures payable before deferred financing cost has been estimated at
$154,110 (December 31, 2014 – $154,500), compared with the carrying value before deferred financing costs of
$149,201 (December 31, 2014 – $149,043).
(c) Fair Value Hierarchy of Real Estate Properties
The fair value hierarchy of income producing properties, properties under development and land held for development
measured at fair value in the consolidated balance sheets is as follows:
June 30, 2015
As at
ASSETS:
December 31, 2014
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$—
$—
$—
$—
$—
$—
$2,785,885
$24,857
$27,650
$—
$—
$—
$—
$—
$—
$2,822,074
$16,511
$27,650
Risks Associated With Financial Assets and Liabilities
The Trust is exposed to financial risks arising from its financial assets and liabilities. The financial risks include
interest rate risk, credit risk and liquidity risk. The Trust’s overall risk management program focuses on establishing
policies to identify and analyze the risks faced by the Trust, to set appropriate risk limits and controls, and to monitor
risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Trust’s activities. The Trust aims to develop a disciplined control environment in which all
employees understand their roles and obligations.
NOTE 17
REAL ESTATE PROPERTIES HELD FOR SALE
Real estate properties held for sale are assets that the Trust intends to sell rather than hold on a long-term basis and
meet the criteria established in IFRS 5 for separate classification. As at December 31, 2014, the Trust's properties
held for sale comprised a 50% interest in a mixed-use office and hotel complex, 350 Sparks and 361 Queen, located
in downtown Ottawa, and three industrial properties, 5591-5631 Finch, 2041-2141 McCowan and 20-24 Lesmill, all
located in Toronto.
On November 4, 2014, the Trust, upon the recommendation of a special committee comprised of independent
trustees, executed an agreement to sell its 50% interest in 350 Sparks and 361 Queen, to Morguard, the existing 50%
co-owner of these properties. On February 17, 2015, the Trust completed the sale to Morguard, for a total price of
$37,692. The transaction included an assumption of the existing mortgage debt of $17,835.
On December 10, 2014, the Trust entered into an agreement to sell 20-24 Lesmill. On May 15, 2015, the Trust
completed the sale of this property, for a total price of $6,350, less selling costs.
MORGUARD.COM
56
On March 2, 2015, the Trust entered into an agreement to sell 5591-5631 Finch. On April 1, 2015, the Trust
completed the sale of this property for a total price of $10,000, less selling costs. The Trust's plan is to dispose of the
remaining industrial property in 2015.
MORGUARD.COM
57
NOTE 18
SEGMENTED INFORMATION
The Trust aggregates its operations into two reportable business segments. Other commercial leasing activities that
do not fall into these segments are presented as "Other" in the table below.
Business Segments
The following presents financial information for these segments:
Interest expense – direct
Fair value losses on real estate properties
Segment profit/(loss)
Interest expense – indirect
Other Income
Additions to real estate properties
Mortgages payable
MORGUARD.COM
Retail
Office
Other
Total
$74,612
28,802
2,505
43,305
$67,385
28,017
2,068
37,300
$3,246
1,375
97
1,774
$145,243
58,194
4,670
82,379
—
13,979
26,196
3,130
(1,682)
10,768
30,203
(1,989)
2,231
1,174
2,015
1,062
—
($5,066)
—
($275)
—
758
63
953
97
51
(342)
$1,147
(1,682)
25,505
56,462
2,094
4,343
2,287
(342)
($4,194)
$1,604,277
$1,197,115
$37,000
$2,838,392
$17,097
$9,886
$11
$26,994
$662,307
$492,475
$10,612
$1,165,394
58
Retail
Office
Other
Total
$76,760
28,923
2,533
45,304
$67,737
28,298
2,144
37,295
$3,632
1,795
107
1,730
$148,129
59,016
4,784
84,329
Interest expense – direct
Fair value (gains)/losses on real estate properties
Segment profit/(loss)
Interest expense – indirect
Net income/(loss) for the period
Additions to real estate properties
Mortgages payable
MORGUARD.COM
—
14,575
(15,164)
45,893
2,635
1,380
(2,087)
10,438
(5,728)
34,672
—
647
3,476
(2,393)
(2,087)
25,660
(17,416)
78,172
125
65
($2,583)
5,086
2,662
$70,424
$41,878
2,326
1,217
$31,129
$1,584,923
$1,204,712
$75,382
$2,865,017
$8,036
$9,060
$1,036
$18,132
$681,856
$509,522
$22,916
$1,214,294
59

morguard real estate investment trust second quarter results 2015

Transcription

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