Morguard Real Estate Investment Trust
Annual Report 2017

Plain-text annual report

HIGH-QUALITY COMMERCIAL PROPERTIES, RESPONSIVE TO TENANTS’ CHANGING NEEDS AND FOCUSED ON RE-INVESTMENT: MORGUARD REAL ESTATE INVESTMENT TRUST IS COMMITTED TO RE-ENVISIONING TOGETHER. 2017 ANNUAL REPORT ON THE COVER PRAIRIE MALL GRANDE PRAIRIE, AB  RE-ENVISIONING TOGETHER Canadian workplaces and communities are rapidly changing and Morguard Real Estate Investment Trust is responding by investing in its real estate properties across the country. Our diversified portfolio comprises a wide range of commercial asset types, enabling us to address the needs of our current tenants, provide a vision for future tenants while maintaining a stable cash flow over time. By rethinking, repurposing and reimagining our properties, we are helping to create vibrant workplaces and shopping destinations that support the communities where we operate. ASSET MANAGEMENT DEVELOPMENT COMMUNITIES  FELLOW UNITHOLDERS 2017 was a challenging year. However, Morguard Real Estate Investment Trust is starting to realize the benefits of our efforts in a number of development and leasing initiatives, with over 290,000 square feet of development now revenue generating. As a result, we were able to sustain our unbroken record of monthly distributions to you, our valued unitholders, and I’m pleased to share the results with you in this year’s annual report. The diversity of our portfolio helped to reduce the impact of Alberta’s economic slowdown, as well as the ongoing challenges within the retail sector. Today, the Trust is actively optimizing its income stream through the modernization of its retail properties. This means less reliance on rental income from large retailers and the development of diverse revenue sources from our retail centres. The near-term goal is to identify, develop and intensify assets that are currently underutilized, in particular the land on which our retail centres stand, and non-performing retail spaces. We believe these efforts will result in a growing income stream over time. Looking further ahead, we’ll maintain our focus on increasing the Trust’s income stream to fund future portfolio growth and, of course, to reward our unitholders. As always, I express my sincere appreciation to our talented management team, our dedicated employees, our experienced and capable Trustees, and to you, our loyal unitholders. Your loyalty and enthusiasm helped drive the ongoing success of Morguard Real Estate Investment Trust in 2017, and I’m confident will continue as we focus on our commitment to re-envisioning together. Sincerely, K. RAI SAHI PRESIDENT AND CHIEF EXECUTIVE OFFICER 2 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T  FINANCIAL HIGHLIGHTS IN THOUSANDS OF CANADIAN DOLL ARS, EXCEPT PER UNIT AMOUNTS AS AT DECEMBER 31 2013 2014 2015 2016 2017 Revenue from real estate properties $279,651 $298,461 $290,982 $280,726 $278,754 Net operating income $161,336 $169,739 $165,930 $160,500 $157,025 Funds from operations – Basic $100,763 $106,516 $106,385 $113,500 $100,766 Adjusted funds from operations – Basic $65,060 $78,973 $79,208 $87,091 $74,983 Funds from operations – Basic per unit Adjusted funds from operations – Basic per unit Distributions per unit Total assets Weighted average number of units as at year-end (in thousands) – Basic $1.59 $1.03 $0.96 $1.71 $1.27 $0.96 $1.72 $1.28 $0.96 $1.87 $1.43 $0.96 $1.66 $1.24 $0.96 $2,942,799 $3,016,496 $2,920,155 $3,034,190 $2,921,091 63,456 62,168 61,779 60,750 60,622 $298 $291 $280 $281 $279 $170 $166 $161 $161 $157 $114 $107 $106 $101 $101 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 REVENUE FROM REAL ESTATE PROPERTIES NET OPERATING INCOME FUNDS FROM OPERATIONS – BASIC IN MILLIONS OF DOLL ARS IN MILLIONS OF DOLL ARS IN MILLIONS OF DOLL ARS M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 3 LEF T TO RIGHT STANDARD LIFE OT TAWA, ON 77 BLOOR STREET WEST TORONTO, ON PL ACE INNOVATION SAINT-L AURENT, QC ASSET MANAGEMENT DEVELOPMENT COMMUNITIES ASSET MANAGEMENT Our goal is to derive the greatest value possible from our extensive real estate portfolio. We apply innovative forward thinking to enhance our properties. 77 Bloor Street in downtown Toronto is an excellent example. The Trust brought the property to a Class A LEED Gold standard while increasing leasable area and enhancing rental rates. At year-end 2017, the building was appraised at $250 million, two and a half times its original purchase price in 2009. 2 0 1 7 H I G H L I G H T S VARIOUS ASSET CLASSES ACROSS CANADA STRENGTH IN DIVERSIFICATION The Trust’s strategic goal is to ensure a stable and increasing cash flow over time, and critical to this strategy is diversifying our holdings. As a result, the Trust operates across three asset classes and six provinces. This has been a proven strategy, helping to minimize the effects of any downturn that 56% RETAIL 38% OFFICE 6% INDUSTRIAL may occur in a specific asset class, industry or geographic market. The Trust’s retail portfolio includes two types of income producing properties – enclosed full-scale, regional shopping centres and community strip centres – located in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. The enclosed full-scale, regional shopping centres are dominant in their respective markets, while the community strip centres include 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 of retailer. Like our retail assets, the Trust’s office portfolio includes two main asset types: single-tenant and multi-tenant. The single-tenant properties help to stabilize the Trust’s revenue stream, as they are typically under long-term leases to major corporate and government tenants. Multi-tenant properties with well-distributed lease expiration dates enable the Trust to benefit from increased rental rates on lease renewal, without creating an exposure to high tenant turnover in any one year. The office portfolio is geographically diversified across four provinces. In addition, the Trust’s portfolio is further diversified by its interests in four industrial properties located in Ontario and Quebec. GROSS LEASABLE AREA BY ASSET CLASS1 AS AT DECEMBER 31, 2017 13% 24% 6% 8% 8% 41% GROSS LEASABLE AREA BY GEOGRAPHIC REGION1 AS AT DECEMBER 31, 2017 1. Excluding income producing properties held for development. LEF T TO RIGHT WOODBRIDGE SQUARE VAUGHAN, ON PETROLEUM PL AZA EDMONTON, AB 6 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 2 0 1 7 H I G H L I G H T S KEEPING PACE WITH AN EVOLVING RETAIL LANDSCAPE RE-ENVISIONING THE RETAIL PORTFOLIO The retail marketplace is continuing to see change as owners adapt shopping centres to meet the needs of consumers. The breadth and diversity of our retail portfolio provide the Trust with the opportunity to accommodate modern uses and services. This re-envisioning of the retail portfolio includes two primary strategies. The first is to intensify underutilized density to increase our gross leasable area (“GLA”) and deliver diverse sources of revenue for our unitholders. For the community, this makes the Trust’s retail centres more “experiential” and service-oriented. The second is to remerchandise space vacated by major retailers such as Target to not only replace lost revenues but to increase revenues generated from the same gross leasable area. This means an enhanced tenant mix, an increase in foot traffic for our tenants and ultimately greater tenant sales. Our retail intensification initiatives will increase gross leasable area by 139,200 square feet and will reactivate 654,000 square feet. During 2017, 79,200 square feet of new space and 211,500 square feet of remerchandised space became revenue generating in four of the Trust’s community strip centres and four of the Trust’s regional enclosed centres. Investment by the Trust in these delivered projects was $54.2 million. By the end of 2017, the delivered development projects were generating $1.2 million of net operating income per quarter. By the end of 2018, we expect to have successfully re-leased all of the gross leasable area from the Target space. COMPLETED DEVELOPMENT PROJECTS AS AT DECEMBER 31, 2017 GLA PROPERTY NEW REDEVELOPED TOTAL ADJUSTMENT2 INCOME PRODUCING COMPLETION DATE TOTAL PROJECT OCCUPANCY COST1 % 2,3 Parkland Mall 52,000 43,000 95,000 (7,500) 87,500 Q2 2017 $15,000 Shoppers Mall The Centre Airdrie Co-op Aurora Centre Shoppers Mall Prairie Mall Woodbridge Square The Centre — — 5,000 16,000 — — — — Charleswood Centre 6,200 77 Bloor Street West 5,500 Others 41,000 41,000 (3,500) 37,500 Q2 2017 13,000 13,000 (1,000) 12,000 Q2 2017 — — 5,000 16,000 — — 5,000 Q3 2017 16,000 Q3 2017 62,500 62,500 500 63,000 Q3 2017 56,000 56,000 (17,000) 39,000 Q3 2017 4,500 4,500 20,000 20,000 — — 6,200 5,500 — — — — 4,500 Q3 2017 20,000 Q4 2017 6,200 5,500 Q4 2017 Q2 2016 7,335 1,251 1,732 5,488 7,906 8,313 1,156 4,794 615 3,290 638 84,700 240,000 324,700 (28,500) 296,200 $57,518 86.3 86.6 100.0 100.0 100.0 100.0 80.8 65.2 100.0 100.0 100.0 1. In thousands of dollars 2. GLA adjustment due to reconfiguration caused by change in use. 3. Represents occupied GLA for development projects as a percentage of total GLA for development projects. M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 2 0 1 7 A N N U A L R E P O R T 7 7 LEF T TO RIGHT SHOPPERS MALL BRANDON, MB MALL INTERIOR ENTRANCE RENDERING DEVELOPMENT SITE PL AN DEVELOPMENT Ensuring our retail centres meet the needs of our tenants and communities is a core strategy. Modernizing and remerchandising our retail shopping centres delivers on that strategy. The Trust revitalized Shoppers Mall in Brandon, Manitoba bringing in fitness facilities, a pharmacy, and additional restaurant buildings. We also worked with the grocery anchor to enhance its offering of prepared foods, seating areas and event space. This revitalization has solidified its place as a desirable destination in the community and has significantly increased foot traffic. ASSET ASSET MANAGEMENT MANAGEMENT DEVELOPMENT DEVELOPMENT COMMUNITIES COMMUNITIES  COMMUNITIES The Trust sees its retail properties as extensions of the communities they serve. They are destinations in and of themselves – community centres. To help respond to the needs of individual communities, we have partnered with municipal transit authorities to build transit stations within five of our properties. Cambridge Centre, for example, is positioned as an intensified, transit-oriented, mixed-use community hub with the opening of a new regional multi-transit authority station in December, 2016. LEF T TO RIGHT CAMBRIDGE CENTRE CAMBRIDGE, ON RENDERING MALL EVENT ICE RINK ASSET MANAGEMENT DEVELOPMENT COMMUNITIES 2 0 1 7 H I G H L I G H T S DELIVERING DEVELOPMENT PROJECTS TO GENERATE GREATER REVENUE FOCUSED ON FINANCIAL RESULTS NET OPERATING INCOME For 2017, our total net operating income was $157.0 million, compared with $160.5 million a year earlier. During 2017, the Trust continued to be challenged by reduced performance in the retail portfolio. Development projects that began generating revenue in the second quarter of 2017 offset decreases resulting from vacancy costs and basic rent. It is expected that the full impact of our development projects will be realized toward the end of 2018. STEADY PERFORMANCE FOR UNITHOLDERS CONSISTENT DISTRIBUTIONS YEAR OVER YEAR Throughout the year, we continued to make monthly distributions to our unitholders. Since inception, our distributions have held steady or increased, but have never lessened. For 2017, the monthly distributions per unit were $0.08, for an annualized total of $0.96 per unit. Overall, the Trust’s distributions for the year were $58.2 million. In setting the level of distributions, the Trustees closely monitor our payout ratio – that is, the cash distributions to basic adjusted funds from operations – to ensure sufficient funds are retained for reinvestment. At December 31, 2017, the Trust’s payout ratio was 77.4%, compared with a ratio of 67.1% at December 31, 2016. The significant difference between 2017 and 2016 is the inclusion of a one-time $11.3 million settlement which increased adjusted funds from operations in 2016. MANAGING THE FINANCES PRUDENT, BALANCED OVERSIGHT Managing the capital of the Trust prudently is an ongoing objective. This includes having an appropriate balance between different types of debt, and maintaining an appropriate ratio of debt to total assets. The Trust’s debt ratio at December 31, 2017 was 44.5%, a decrease from December 31, 2016 of 2.5% (47.0%). This decrease is largely the result of both the 2012 and 2016 convertible debentures remaining on the balance sheet at December 31, 2016. The 2012 convertible debentures were redeemed for cash on January 9, 2017. The Trust’s debt ratio at December 31, 2016 was 44.8%, adjusting for the 2012 debentures. 1 2 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 52% RETAIL 46% OFFICE 2% INDUSTRIAL NET OPERATING INCOME BY ASSET CLASS1 AS AT DECEMBER 31, 2017 $0.96 $0.96 $0.96 $0.96 $0.96 13 14 15 16 17 CASH DISTRIBUTIONS PER UNIT AS AT DECEMBER 31 14% 29% 5% 7% 6% 39% NET OPERATING INCOME BY GEOGRAPHIC REGION1 AS AT DECEMBER 31, 2017 1. Excluding income producing properties held for development.  SUMMARY OF SELECTED ANNUAL INFORMATION IN THOUSANDS OF CANADIAN DOLL ARS, EXCEPT PER UNIT AMOUNTS Revenue from real estate properties Net operating income Income before fair value (losses)/gains, (loss)/gain on sale of real estate properties and net income/(loss) from equity-accounted investments Fair value (losses)/gains on real estate properties (Loss)/gain on sale of real estate properties Net income/(loss) from equity-accounted investments Net income Funds from operations Adjusted funds from operations 1, 6 AMOUNTS PRESENTED ON A PER UNIT BASIS NET INCOME Basic Diluted 2 FUNDS FROM OPERATIONS Basic Diluted 2 ADJUSTED FUNDS FROM OPERATIONS 1, 6 Basic Diluted 2 CASH DISTRIBUTIONS PER UNIT PAYOUT RATIO – Adjusted funds from operations 1, 3 WEIGHTED AVERAGE NUMBER OF UNITS AS AT YEAR-END (IN THOUSANDS) Basic Diluted 2 BALANCE SHEETS Total assets Total liabilities Total equity 2017 2016 2015 2014 2013 $278,754 157,025 $280,726 160,500 $290,982 165,930 $298,461 169,739 $279,651 161,336 97,600 (31,225) — 931 67,306 100,766 74,983 $1.11 $1.05 $1.66 $1.57 $1.24 $1.20 $0.96 77.4% 110,408 (51,643) — (1,558) 57,207 113,500 87,091 $0.94 $0.93 $1.87 $1.81 $1.43 $1.41 $0.96 67.1% 103,153 (78,977) — 2,441 26,617 106,385 79,208 $0.43 $0.43 $1.72 $1.67 $1.28 $1.27 $0.96 102,700 11,239 (37) (20) 113,882 106,516 78,973 $1.83 $1.72 $1.71 $1.67 $1.27 $1.26 $0.96 97,080 107,641 2,058 5,602 212,381 100,763 65,060 $3.35 $3.01 $1.59 $1.55 $1.03 $1.03 $0.96 75.0% 75.6% 93.2% 60,622 69,200 60,750 66,780 61,779 67,876 62,168 68,265 63,456 69,554 $2,921,091 $1,355,500 $1,565,591 $3,034,190 $1,479,007 $1,555,183 $2,920,155 $1,364,015 $1,556,140 $3,016,496 $1,409,415 $1,607,081 $2,942,799 $1,390,061 $1,552,738 GROSS LEASABLE AREA AS AT YEAR-END (IN THOUSANDS OF SQUARE FEET) 4 Retail Office Industrial TOTAL OCCUPANCY AS AT YEAR-END (%) 4, 5 Retail Office Industrial TOTAL 4,726 3,198 534 8,458 97% 93% 98% 95% 4,721 3,201 534 8,456 96% 97% 98% 96% 4,710 3,365 534 8,609 97% 97% 97% 97% 4,775 3,678 534 8,987 96% 96% 97% 96% 4,771 3,314 534 8,619 98% 95% 87% 96% 1. Restated in accordance with REALpac white paper on FFO and AFFO effective January 1, 2017. The restatement required the inclusion of the one-time Target Corporation settlement of $11.3 million, finalized in the second quarter of 2016 (see part IV). 2. Includes the dilutive impact of the outstanding convertible debentures. 3. Cash distributions per unit as a percentage of adjusted funds from operations – basic. 4. Gross leasable area for income producing properties, excluding IPP held for development, and excluding equity-accounted investments. 5. Excludes properties held for sale and area under development. 6. The Trust uses normalized productive capacity maintenance expenditures to calculate adjusted funds from operations. M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 1 3  BALANCE SHEETS IN THOUSANDS OF CANADIAN DOLL ARS AS AT DECEMBER 31 ASSETS NON-CURRENT ASSETS Real estate properties Equity-accounted investment CURRENT ASSETS Amounts receivable Loan receivable Prepaid expenses and other Cash and cash equivalents TOTAL ASSETS LIABILITIES AND UNITHOLDERS’ EQUITY NON-CURRENT LIABILITIES Mortgages payable Convertible debentures Other liabilities CURRENT LIABILITIES Mortgages payable Convertible debentures Accounts payable and accrued liabilities Loan payable Bank indebtedness TOTAL LIABILITIES Unitholders’ equity 2017 2016 $2,861,816 27,080 2,888,896 16,601 — 842 14,752 32,195 $2,826,098 28,201 2,854,299 15,172 50,000 2,023 112,696 179,891 $2,921,091 $3,034,190 $990,959 166,983 3,728 1,161,670 89,299 — 51,670 35,000 17,861 193,830 1,355,500 1,565,591 $2,921,091 $1,027,841 165,273 3,663 1,196,777 84,653 149,975 47,602 — — 282,230 1,479,007 1,555,183 $3,034,190 1 4 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME IN THOUSANDS OF CANADIAN DOLL ARS, EXCEPT PER UNIT AMOUNTS FOR THE YEAR ENDED DECEMBER 31 Revenue from real estate properties Property operating expenses Property management fees NET OPERATING INCOME Interest expense General and administrative Other income INCOME BEFORE FAIR VALUE LOSSES AND NET INCOME/(LOSS) FROM EQUIT Y-ACCOUNTED INVESTMENT Fair value losses on real estate properties Net income/(loss) from equity-accounted investment NET INCOME OTHER COMPREHENSIVE INCOME Item to be reclassified to profit or loss in subsequent periods: Amortization of cash flow hedges COMPREHENSIVE INCOME NET INCOME PER UNIT Basic Diluted 2017 $278,754 112,563 9,166 157,025 55,087 4,517 (179) 97,600 (31,225) 931 67,306 — $67,306 $1.11 $1.05 2016 $280,726 111,020 9,201 160,505 56,676 4,726 (11,305) 110,408 (51,643) (1,558) 57,207 189 $57,396 $0.94 $0.93 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 1 5  STATEMENTS OF UNITHOLDERS’ EQUITY IN THOUSANDS OF CANADIAN DOLL ARS, EXCEPT NUMBER OF UNITS NUMBER OF UNITS ISSUE OF UNITS EQUIT Y COMPONENT OF CONVERTIBLE DEBENTURES RETAINED EARNINGS CONTRIBUTED SURPLUS ACCUMUL ATED OTHER TOTAL COMPREHENSIVE UNITHOLDERS’ LOSS EQUIT Y UNITHOLDERS’ EQUIT Y, JANUARY 1, 2016 60,891,654 $613,044 $941,421 $1,526 $338 ($189) $1,556,140 Repurchase of units 2012 Debentures converted 2016 Debentures issued Net income Distributions to unitholders Issue of units – DRIP 1 Amortization of cash flow hedges UNITHOLDERS’ EQUIT Y, DECEMBER 31, 2016 Repurchase of units 2012 Debentures converted 2012 Debentures redeemed Net income Distributions to unitholders Issue of units – DRIP UNITHOLDERS’ EQUIT Y, DECEMBER 31, 2017 1. Distribution Reinvestment Plan (“DRIP”) (371,769) (3,744) (2,096) 406 — — — 10 — — — 80,416 — 1,189 — — — 57,207 (57,117) (1,189) — — — 4,594 — — — — — — — — — — — — — — — — — 189 (5,840) 10 4,594 57,207 (57,117) — 189 60,600,707 610,499 938,226 6,120 338 — 1,555,183 (50,300) (507) (259) 731 — — — 18 — — — 140,591 2,053 — — 67,306 (56,150) (2,053) — — — — (1,526) 1,526 — — — — — — — — — — — — (766) 18 — 67,306 (56,150) — 60,691,729 $612,063 $947,070 $4,594 $1,864 $— $1,565,591 1 6 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T  STATEMENTS OF CASH FLOWS IN THOUSANDS OF CANADIAN DOLL ARS FOR THE YEAR ENDED DECEMBER 31 2017 2016 OPERATING ACTIVITIES Net income Add items not affecting cash Distributions from equity-accounted investment Additions to tenant incentives and leasing commissions Net change in non-cash operating assets and liabilities CASH PROVIDED BY OPERATING ACTIVITIES FINANCING ACTIVITIES Proceeds from new mortgages Financing cost on new mortgages Repayment of mortgages Repayments on maturity Principal instalment repayments Net repayment of 2012 Debentures Net proceeds from 2016 Debentures Proceeds from bank indebtedness Proceeds from loan payable Repayment of loan payable Distributions to unitholders Units repurchased for cancellation CASH USED IN FINANCING ACTIVITIES INVESTING ACTIVITIES Capital expenditures on real estate properties Acquisition of real estate properties Proceeds from sale of real estate properties, net CASH USED IN INVESTING ACTIVITIES NET CHANGE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents, beginning of period CASH AND CASH EQUIVALENTS, END OF PERIOD $67,306 31,494 2,052 (3,920) 3,885 100,817 53,000 (185) (50,250) (35,490) (99,957) 7 17,861 35,000 — (56,150) (766) (136,930) (61,831) — — (61,831) (97,944) 112,696 $14,752 $57,207 55,015 2,750 (3,878) 4,054 115,148 30,063 (161) (55,749) (34,703) — 119,863 — 17,000 (17,000) (57,117) (5,840) (3,644) (47,415) (61) 22,386 (25,090) 86,414 26,282 $112,696 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 1 7 HERITAGE PL ACE OT TAWA, ON PORTFOLIO SUMMARY AS AT DECEMBER 31, 2017 $2.9B 49 21 REAL ESTATE PROPERTIES TOTAL PROPERTIES RETAIL PROPERTIES 28 8.6M OFFICE AND INDUSTRIAL PROPERTIES GROSS LEASABLE AREA (SF) 95% PORTFOLIO OCCUPANCY 1 8 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T  RETAIL PORTFOLIO AS AT DECEMBER 31, 2017 PROPERTY CITY PROV. OWNERSHIP INTEREST (%) TOTAL AREA (SF) OWNERSHIP AREA (SF) OCCU - PANCY (%) TOP TENANTS Burquitlam Plaza Coquitlam Pine Centre Mall Prince George Shelbourne Plaza Airdrie Co-op Centre Airdrie RONA Centre Heritage Towne Centre Victoria Airdrie Airdrie Calgary Prairie Mall Grande Prairie Parkland Mall • 5 The Centre Shoppers Mall • 2 Charleswood Centre Southdale Centre Aurora Centre Cambridge Centre • 2 Market Square Wonderland Corners Red Deer Saskatoon Brandon Winnipeg Winnipeg Aurora Cambridge Kanata London Kingsbury Centre Mississauga Hampton Park Plaza Home Base St. Laurent Ottawa Ottawa Ottawa Woodbridge Square Vaughan TOTAL RETAIL BC BC BC AB AB AB AB AB SK MB MB MB ON ON ON ON ON ON ON ON ON 100 100 100 100 100 100 50 100 100 68,000 68,000 476,000 476,000 57,000 70,000 44,000 57,000 70,000 44,000 131,000 131,000 297,000 148,500 473,000 473,000 503,000 503,000 100 367,000 367,000 100 100 100 122,500 122,500 175,500 175,500 304,000 304,000 100 612,500 612,500 58,000 47,500 70,000 58,000 47,500 70,000 102,000 102,000 100 100 100 100 100 100 50 88 99 100 94 100 100 90 86 96 95 100 98 100 99 96 90 98 96 CIBC, Dollarama, Shoppers Drug Mart Lowes, Shoppers Drug Mart, Sport Chek Fairway Market, Scotiabank, TD Canada Trust Co-op Grocery, Co-op Liquor, TD Canada Trust RONA Ashley Furniture, Dollarama, Home Outfitters Ardene, Mark’s Work Wearhouse, Marshalls, Shoppers Drug Mart, Urban Planet Dollarama, GoodLife Fitness, Staples, Walmart Best Buy, Co-op Grocery, Goodlife Fitness, Shoppers Drug Mart, Sport Chek Capitol Theatre, GoodLife Fitness, Shoppers Drug Mart (Fall 2018), Sobeys, Sport Chek Dollarama, Safeway, Shoppers Drug Mart Bank of Montreal, Dollarama, Rexall, Walmart Canadian Tire, Cineplex, GoodLife Fitnes, PetSmart, Sobeys Bingeman’s (Fall 2018), Galaxy, H&M, Hudson’s Bay, Indigo (Fall 2018) Farm Boy, LCBO, TD Canada Trust Swiss Chalet Longo’s, Scotiabank, Shoppers Drug Mart Food Basics, Rexall, Swiss Chalet 10,000 10,000 100 Royal Bank 820,000 820,000 112,000 56,000 4,920,000 4,715,500 99 97 97 Hudson’s Bay, Sport Chek, Ardene Nations Fresh Foods, Scotiabank Certifications: • 1 LEED Gold • 2 LEED Silver • 1 BOMA Platinum • 2 BOMA Gold • 3 BOMA Silver • 4 BOMA Bronze • 5 BOMA Certified 97% RETAIL OCCUPANCY 4.7M RETAIL SF LEF T TO RIGHT AURORA CENTRE AURORA, ON ST. L AURENT OT TAWA, ON M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 1 9 OFFICE PORTFOLIO AS AT DECEMBER 31, 2017 PROPERTY CITY PROV. OWNERSHIP INTEREST (%) TOTAL AREA (SF) OWNERSHIP AREA (SF) OCCU - PANCY (%) TOP TENANTS 111 Dunsmuir • 2 Chancery Place • 2 505 3rd Street SW • 2 Seymour Place 7315 8th Street NE Centre 810 Citadel West • 2 Deerport Centre • 3 Duncan Building • 3 National Bank Building 207 and 215 9th Avenue SW • 2 Petroleum Plaza • 3 Scotia Place • 2 301 Laurier Avenue 525 Coventry Vancouver Vancouver Victoria Calgary Calgary Calgary Calgary Calgary Calgary Calgary Calgary Edmonton Edmonton Ottawa Ottawa Ottawa Ottawa Green Valley Office Park • 3 Heritage Place • 3 St. Laurent Business Centre Ottawa Standard Life Time Square • 3 200 Yorkland • 3 77 Bloor Street West • 1 • 3 Place Innovation • 2 TOTAL OFFICE Ottawa Ottawa Toronto Toronto Saint-Laurent BC BC BC AB AB AB AB AB AB AB AB AB AB ON ON ON ON ON ON ON ON ON QC 100 100 100 50 100 100 100 100 100 100 100 50 20 50 100 100 50 100 50 100 100 50 50 222,000 142,500 235,500 142,000 19,500 77,500 78,500 48,500 81,000 43,500 222,000 142,500 235,500 71,000 19,500 77,500 78,500 48,500 81,000 43,500 636,500 636,500 304,000 565,000 26,000 42,500 123,000 215,000 88,000 378,000 111,000 149,500 396,000 900,000 152,000 113,000 13,000 42,500 123,000 107,500 88,000 189,000 111,000 149,500 198,000 450,000 100 100 100 75 100 92 100 84 100 100 99 99 64 19 AMEC Americas, Stantec Consulting Province of British Columbia Province of British Columbia Morguard, Strike Energy, Wilmington Capital Genesis Land Development Cima Canada, Tektelic Communications Inc. CH2M Hill Canada Aerotek, Colleaux Engineering, State Farm RCMP National Bank of Canada Obsidian Energy Ltd. Alberta Infrastructure APEGA, Duncan and Craig, Grant Thornton Moores 100 Assent Compliance 82 64 71 98 90 90 94 Ottawa Fertility Clinic, The Ottawa Hospital Public Services and Procurement Canada Intact Insurance Company, RJR Innovations Public Services and Procurement Canada BBB Urban, Le Droit, Public Works AG Simpson, Ferring, Investors Group Harry Rosen, Realstar, TD Canada Trust 100 AJW Technique, Amdocs, Bombardier 5,025,000 3,392,500 93 Certifications: • 1 LEED Gold • 2 LEED Silver • 1 BOMA Platinum • 2 BOMA Gold • 3 BOMA Silver • 4 BOMA Bronze • 5 BOMA Certified INDUSTRIAL PORTFOLIO AS AT DECEMBER 31, 2017 PROPERTY 1875 Leslie 2041-2151 McCowan 279 Yorkland 285 Yorkland 825 Des Érables TOTAL INDUSTRIAL CITY Toronto Toronto Toronto Toronto Salaberry-de- Valleyfield OWNERSHIP INTEREST (%) PROV. TOTAL AREA (SF) OWNERSHIP AREA (SF) OCCU - PANCY (%) TOP TENANTS ON ON ON ON QC 100 100 100 100 50 52,000 52,000 196,500 196,500 18,000 25,000 18,000 25,000 485,000 242,500 100 95 100 100 100 Body and Soul Fitness, Goose & Firkin Canadian Standard Floor Loblaw Properties Ltd. Mitchell Partnership Diageo 776,500 534,000 98 TOTAL 10,721,500 8,642,000 93% 98% 3.4M OFFICE OCCUPANCY INDUSTRIAL OCCUPANCY OFFICE SF 0.5M INDUSTRIAL SF 2 0 M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T m o c . c n i s n o i t a c i n u m m o c p m u j . w w w : n g i s e D CORPORATE INFORMATION 2 0 1 7 H I G H L I G H T S MORGUARD REAL ESTATE INVESTMENT TRUST AT A GLANCE Morguard Real Estate Investment Trust (the Trust) is a closed-end trust listed on the Toronto Stock Exchange (TSX) under the symbol MRT.UN. As of December 31, 2017, the Trust’s total assets were $2.9 billion. The Trust’s mandate is to accumulate a Canadian portfolio of high-quality retail, office and industrial income-producing properties and manage the portfolio proactively to generate a stable and increasing cash flow, providing steady, dependable returns for unitholders over time. With a diversified real estate portfolio of 49 commercial properties located in six Canadian provinces, the Trust owns approximately 8.6 million square feet of gross leasable area. The Trust’s real estate portfolio includes well-located office properties in major urban centres, large enclosed regional centres that are dominant in their respective markets, service-focused community strip centres and a selection of industrial properties. TRUSTEES FRASER R. BERRIL 1, 2, 3 President Fragin Holdings Limited PAUL F. COBB 1, 2, 3 Corporate Director DAVID A. KING K. RAI SAHI Chairman and Chief Executive Officer Morguard Corporation MICHAEL A.J. CATFORD1, 2, 3 Corporate Director Real Estate Consultant ANTONY K. STEPHENS 1, 2, 3 EDWARD C. KRESS 1, 2, 3 Corporate Director TIMOTHY J. WALKER 1, 3 Corporate Director 1 Independent Trustee 2 Audit Committee 3 Compensation and Governance Committee OFFICERS DAVID A. KING Chairman K. RAI SAHI President and Chief Executive Officer Corporate Director Brookfield Group PAMELA MCLEAN Chief Financial Officer BEVERLEY G. FLYNN Vice President, General Counsel and Secretary INVESTOR INFORMATION HEAD OFFICE Morguard Real Estate Investment Trust 55 City Centre Drive, Suite 1000 Mississauga, ON L5B 1M3 T 905-281-4800 or 1-800-928-6255 info@morguard.com LISTING Toronto Stock Exchange SYMBOL MRT.UN MRT.DB ELIGIBILIT Y RRSP RRIF DPSP RPP TFSA AUDITORS Ernst & Young LLP PRINCIPAL BANKERS Bank of Montreal, Toronto-Dominion Bank TRANSFER AGENT Computershare Trust Company 1-800-564-6253 www.computershare.com PAUL MIATELLO Vice President ROBERT D. WRIGHT Vice President INVESTOR RELATIONS Visit our website at www.morguard.com or view our filings on SEDAR at www.sedar.com. ANNUAL UNITHOLDER MEETING Wednesday May 9, 2018 at 9:45 a.m. Rattlesnake Point Golf Club, 5407 Regional Road 25, Milton, ON L9T 2X5 FOR ADDITIONAL INFORMATION, CONTACT Beverley G. Flynn Vice President, General Counsel and Secretary T 905-281-4800 info@morguard.com Pamela McLean Chief Financial Officer T 905-281-4800 info@morguard.com The selected annual financial information in the 2017 Annual Report highlights certain key metrics for the Trust. As a result, this report should be read in conjunction with the Trust’s Consolidated Financial Statements for the year ended December 31, 2017, related Management’s Discussion and Analysis (“MD&A”) and the Annual Information Form (“AIF”). These documents are available on the Trust’s website at www.morguard.com. All continuous disclosure documents required by securities regulators are also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed electronically at www.sedar.com. M O R G U A R D R E A L E S T A T E I N V E S T M E N T T R U S T 2 0 1 7 A N N U A L R E P O R T 4 M O RGUA RD RE A L ESTAT E IN V EST MEN T T RUST 55 CITY CENTRE DRIVE SUITE 1000 MISSISSAUGA, ON L5B 1M3 905-281-4800 MORGUARD.COM 

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