Morguard Real Estate Investment Trust (MGRUF) Q4 2022 Earnings Call Transcript

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Morguard Real Estate Investment Trust (OTC:MGRUF) Q4 2022 Earnings Conference Call February 16, 2023 4:00 PM ET

Company Participants

Andrew Tamlin - CFO

Tom Johnston - Senior Vice President of Western Asset Management

Conference Call Participants

Jonathan Kelcher - TD Securities

Tom Callaghan - RBC Capital


Good afternoon, ladies and gentlemen, and invited to nan Morguard REIT Fourth Quarter for nan twelvemonth ended December 31, 2022 Conference Call. At this time, each lines are successful listen-only mode. Following nan presentation, we will behaviour a question-and-answer session. [Operator Instructions] This telephone is being recorded connected Thursday, February 16, 2023.

I would now for illustration to move nan convention complete to Mr. Andrew Tamlin. Please spell ahead, sir.

Andrew Tamlin

Thank you, and bully afternoon, everyone. My sanction is Andrew Tamlin, Chief Financial Officer of Morguard REIT. Welcome to nan Morguard REIT's 4th fourth 2022 net convention call.

I'm joined this day by John Ginnis, Assistant Vice President of Retail Asset Management; Tom Johnston, Vice President of Western Asset Management; and Todd Febbo, Vice President of Eastern Asset Management. Thank you each for taking nan clip to subordinate nan call.

Before we jump into nan call, I would for illustration to constituent retired that our comments will mostly mention to nan 4th fourth 2022 MD&A and financial statements, which person been posted to our Web site. I mention you specifically to nan cautionary connection astatine nan beforehand of nan MD&A, which would besides use to immoderate comments that we would make connected nan call.

Overall, we are pleased again pinch nan 4th fourth results, which showed continued betterment successful nan aforesaid plus metrics from a twelvemonth -- connected a year-over-year basis. Net operating income for nan 4th accrued 6% to $33.5 cardinal successful 2022 owed to continued improvements successful our enclosed promenade portfolio results.

Net operating income for nan twelvemonth was level astatine $122 million. However, nan improved operating results for nan afloat twelvemonth is offset by nan diminution successful one-time lease cancellation fees successful nan magnitude of $2.5 million. FFO for nan 4th besides accrued 6% to $19 cardinal successful 2022 arsenic compared to a twelvemonth ago.

Same-asset nett operating income for nan 4th fourth improved 5% from a twelvemonth ago, buoyed by an almost 10% summation successful same-asset results for our enclosed promenade portfolio. This represents nan seventh 4th successful a statement wherever we person achieved improved same-asset results connected a year-over-year basis. For nan year, our aforesaid plus nett operating income is up 3% chiefly owed to a 10% summation for nan enclosed malls.

Interest disbursal has accrued 6% to $14 cardinal for nan 4th connected a year-over-year basis. The effect of little indebtedness successful nan magnitude of $25 cardinal connected a year-over-year ground has been offset by higher short-term borrowing costs owed to nan higher liking complaint situation that we find ourselves in.

For nan year, liking expenses roseate marginally aliases 0.5%. We proceed to spot liking disbursal expanding successful 2023, notwithstanding our diminution successful debt. This is owed to some an elevated magnitude of owe maturities successful nan adjacent 2 years successful summation to nan truth that nan Trust has astir 18% of its indebtedness arsenic variable.

As mentioned previously, our enclosed promenade results proceed to rebound from nan downturn we saw nether COVID. This rebound started successful precocious 2021 pinch our malls located successful Western Canada and has continued passim 2022 pinch our Ontario malls. These person translated into increases successful percent rent and specialty leasing opportunities.

We are besides pleased to adhd opportunities of discriminating tenants specified arsenic Lululemon and Sephora astatine immoderate of our Western Canada locations pinch perchance much to come. These additions are coagulated endorsements to some our tenant and customer base. Sales astatine our malls for nan astir portion person either bounced backmost aliases exceeded nan pre-COVID levels. This speaks to nan inclination of folks going backmost to nan promenade to do in-person shopping.

In general, we recovered that it was a coagulated vacation play for our enclosed malls and their tenants. We are pleased pinch nan results from Pine Center successful Prince George, British Columbia arsenic well. This promenade will person a caller Save-On-Foods market shop opening shortly, which has besides led to leasing opportunities pinch discriminating tenants specified arsenic Lululemon and Sephora pinch perchance much to come.

Rent arrears and deferrals proceed to decline. The receivable equilibrium for tenants has decreased from $9.2million astatine nan extremity of past twelvemonth to $5.4 cardinal astatine nan extremity of this year. While nan uncollectible overdue amounts person been allowed for, location is still cleanup needed to archive definite abatements to beryllium granted. The immense mostly of these amounts outstanding are from nan Ontario malls and stem from pre-2022 arrears. At this point, nan magnitude of bad indebtedness disbursal that we are seeing is very comparable to pre-COVID levels.

During nan quarter, we had $113 cardinal adjacent worth nonaccomplishment from our existent property properties arsenic we are required to set these assets to adjacent marketplace worth nether IFRS. This represented a 25 ground constituent description of headdress rates for each enclosed promenade unit and agency assets successful consequence to marketplace changes and valuation parameters.

Combined pinch earlier 2022 adjustments, we've recorded $149 cardinal adjacent worth nonaccomplishment for nan twelvemonth arsenic compared to $61 cardinal past year. The REIT's PCME aliases operating and leasing superior reserve was established to beryllium $25million for nan year, which is backmost to normal levels. We spent astir $22 cardinal of this pinch contractor and different delays being nan superior logic why nan afloat magnitude was not spent.

We do expect to beryllium much progressive successful operating superior spending successful some 2023 and 2024 arsenic we drawback up connected delayed projects and look astatine higher leasing volumes, which whitethorn consequence successful a higher level of basal leasing capital. Our wide occupancy levels astatine 91% astatine December 31 remains accordant pinch nan twelvemonth ago. This has only changed somewhat from nan commencement of nan pandemic, which was 93%. This speaks to nan truth that successful astir cases, we've been capable to support tenancy astatine our value assets. I do statement that we person a azygous tenant business plus for which nan tenant did not -- did not renew successful nan 4th quarter. We are moving to find a caller tenant for this asset.

And now for an update connected our leasing efforts. In 2023, there's astir 475,000 quadrate ft successful unit GLA coming due. We do expect that each unit tenant larger than 5,000 quadrate feet to renew their space. There is besides astir 385,000 quadrate feet successful agency abstraction coming due, and we consciousness bully astir nan immense mostly of this abstraction arsenic well.

I do statement that location is 13,000 quadrate feet successful Ottawa that will beryllium vacated and a further 19,000 quadrate feet astatine 77 Bloor, which will beryllium vacated. We spot nary rumor pinch nan 62,000 quadrate feet of business abstraction renewing successful 2023. Leasing discussions for unit opportunities person decidedly picked up successful nan past twelvemonth arsenic some existent and prospective tenants now person a amended grip connected what to expect going forward. This has led to galore conversations astir various opportunities astatine our properties crossed nan country.

Office leasing discussions connected nan different hand, were gaining immoderate momentum, are still somewhat muted arsenic tenants are still trying to fig retired what their agency needs will beryllium for illustration complete nan semipermanent successful a post-COVID world. Management has had continued ongoing discussions pinch nan provincial authorities tenant astatine Petroleum Plaza successful Edmonton, which came up for renewal connected December 31, 2020, and it is now an overhaul. While they person verbally told america that they expect to renew, they person unluckily still been focused connected nan consequence to nan pandemic and different initiatives, which has taken priority. At this point, we are looking astatine 2023 successful bid to get this completed. Our acquisition is akin to different landlords who person nan provincial authorities arsenic tenants. I do statement that this abstraction has remained occupied complete this full clip frame.

Turning to financing and liquidity. The Trust has $122 cardinal successful liquidity astatine nan extremity of nan 4th fourth and $345million successful unencumbered assets. These numbers person changed from $185 cardinal and $315 cardinal a twelvemonth ago. Looking specifically astatine owe renewals, we had $44 cardinal successful owe salary downs successful nan 4th quarter, astir of which related to a $35 cardinal salary down associated pinch nan Penn West Plaza renewal.

The Trust is continuing pinch nan Save-On-Foods improvement occupation astatine Pine Center, which entails nan retenanting of nan erstwhile Lowe's premises into a caller 38,850-square-foot Save-On-Foods market store. Construction efforts are now mostly complete. We expect to beryllium capable to move it complete to nan tenant early successful nan 2nd quarter. The summation of market further complements nan beardown anchor tenant floor plan successful this promenade and arsenic precocious leasing discussions pinch immoderate discriminatory tenants looking to travel into this marketplace.

Last quarter, nan Trust announced that it reached an statement pinch Teamtown to person nan quiet Home Outfitters abstraction astatine Heritage Town Center successful Calgary into a 34,000 quadrate ft unit shop focusing connected sporting goods. This task will costs astir $3 cardinal from a landlord position and will beryllium completed successful nan first 4th of 2023.

Wrapping up, we are pleased that nan resiliency of our assets and nan improved results and activity levels from our enclosed promenade and unit segment. While location is still room to turn to get backmost to pre-COVID levels, we person seen affirmative results from nan past year. We are looking guardant to continued affirmative leasing conversations for our assets.

Most of our enclosed malls stay ascendant successful their geographical area and our portion malls, which are mostly grocery-anchored, person performed well. Beyond our unit assets, we person precocious value agency buildings successful Canada's largest markets pinch a precocious grade of authorities agency tenants. We proceed to beryllium affirmative astir our business and nan nonsubjective of building worth for our unitholders. We look guardant to continuing to execute our strategy, and convey you for your continued support. We will now unfastened nan level to questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Your first mobility comes from Jonathan Kelcher from TD Securities. Please spell ahead.

Jonathan Kelcher

Thanks, bully afternoon. First mobility is conscionable connected nan enclosed unit portfolio, nan same-property NOI beardown successful nan quarter, but beardown each year. Maybe springiness a small spot much colour connected what drove that? And I conjecture what are your expectations for that portfolio for 2023? Where do you deliberation you tin get to occupancy to?

Andrew Tamlin

Do you mind fielding that, John?

Tom Johnston

Sure. No, problem, Andrew. Hey, Jonathan acknowledgment for nan question. You’re right. Retail has seen a resurgence, peculiarly successful 2022. We didn’t really cognize what to expect starting -- opening nan almanac year. Coming retired of COVID restrictions, peculiarly present successful Ontario. But to reply your mobility directly, what drove that really is nett caller demand, and our expertise to rotation up our income that was disproportionately deed during nan pandemic successful this sector. So we consciousness very positive, arsenic Andrew said successful his opening remarks astir nan business.

Going forward, location was a batch of restructuring that ensued successful 2020, and we saw nan effect of nan income connected nan assemblage accordingly. So we've been very, very diligent successful trying to rotation immoderate of that back. We've dealt a batch pinch our receivables, arsenic Andrew noted successful his opening -- successful his remarks arsenic well. So again, a operation of nett caller leasing, our expertise to renew tenants astatine higher rents arsenic portion of nan in-line CRU component. And truthful we consciousness very affirmative connected nan business moving forward.

Jonathan Kelcher

Okay. And what -- for illustration you ended nan twelvemonth astatine 93% aliases conscionable complete 93% occupancy. What -- really overmuch -- what would you opportunity is simply a stabilized number you'd beryllium happy with?

Tom Johnston

So successful nan mall-based portfolio, it's evolving successful position of benignant of peculiarly successful nan mid-market sector. But our dream is that achieving a 95% stabilized occupancy successful nan enclosed promenade segment, it's astir apt thing we're looking to achieve. The portion halfway portfolio is simply a small spot different. Then typically has a higher stabilized do conscionable fixed nan quality of nan plus being a niche-based plus portfolio.

Jonathan Kelcher

Okay. And past conscionable turning to nan equilibrium sheet. You do person a bunch of indebtedness rolling complete 2023, 2024, what benignant of indebtedness to values do you deliberation you tin do correct now? And what liking rates are you looking at?

Tom Johnston

Thanks, Jonathan. So yes, location are higher magnitude of maturities coming up successful 2023 and 2024. We're looking astatine doing loan-to-values successful nan 50% to 60% range. There's astir apt not going to beryllium a ton of readiness for op financing. There's going to beryllium definite opportunities. But we'll beryllium looking astatine benignant of what we tin do there. And successful narration to your mobility connected liking rates, they're astir apt going to beryllium successful nan scope of 5% to 6%, hopefully a small spot little than that, but that's benignant of what we've been budgeting.

Jonathan Kelcher

Okay. So you're saying 50% to 60%. But if I look astatine your chart, it benignant of has nan maturing loan-to-value astatine 65%.So would that connote immoderate -- immoderate existent salary downs this year? There will apt beryllium a nett salary down, yes. Yes. Okay. Thanks, all. I will move it back.


Thank You. [Operator Instructions] Your adjacent mobility is from Tom Callaghan from RBC Capital. Please spell ahead.

Tom Callaghan

Thanks, bully afternoon. Just a speedy follow-up location connected nan maturities and nan indebtedness broadside of things. Just successful position of fixed versus adaptable rates, I deliberation you had mentioned, Andrew, now benignant of astatine 18% exposed to variable. That's up rather a spot quarter-over-quarter, and I cognize related to nan refinancing there. But is that thing you're comfortable pinch present successful nan short-term fixed liking rates? Or are you going to look to benignant of hole immoderate of those rates successful nan coming quarters?

Tom Johnston

We'll beryllium monitoring that, Tom. I deliberation nan reasoning connected liking rates changes, it's a very fluid environment. So I don't want to benignant of make immoderate promises connected that. So we will beryllium monitoring that. And if we deliberation it's due to spell fixed connected that, that would we will. But it is thing that we're monitoring. .

Tom Callaghan

Yes understood. That’s each for me. Thanks, guys.


[Operator Instructions] There are nary further questions astatine this time. Please proceed, Mr. Tamlin.

Andrew Tamlin

Well, thanks, everybody, for joining nan telephone and looking guardant to talking to everybody again adjacent quarter. Thank you.


Thank you. Ladies and gentlemen, nan convention has now ended. Thank you each for participating. You whitethorn each disconnect.

Editor: Naga

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