Morguard Real Estate Investment Trust
Annual Report 2018

Plain-text annual report

MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT TAKING ACTION. FINDING OPPORTUNITY. ON THE COVER (LEF T TO RIGHT) ST. L AURENT OT TAWA, ON SCOTIA PL ACE EDMONTON, AB The selected annual financial information in the 2018 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, 2018, 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. NON-IFRS MEASURES The Trust reports its financial results in accordance with IFRS. However, the MD&A also uses certain financial measures that are not defined by IFRS. These measures do not have any standard meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. These measures should be considered supplemental in nature, and not as substitutes for related financial information prepared in accordance with IFRS. The Trust’s management uses these measures to aid in assessing the Trust’s underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-IFRS measures described further in the MD&A (and include NOI, FFO and AFFO), which supplement the IFRS measures, provide readers with a more comprehensive understanding of management’s perspective on the Trust’s operating results and performance.  FELLOW UNITHOLDERS Morguard Real Estate Investment Trust experienced a solid year of activity in 2018. We further strengthened the portfolio by focusing on a number of development and leasing initiatives within our properties and in 2018 these efforts generated solid income for the Trust. As a result, we continue to maintain a Canadian portfolio of high-quality real estate assets and remain committed to delivering the benefits to our unitholders. Given the slowdown of Alberta’s oil and gas sector as well as the retail sector, the Trust has still been able to maintain high occupancy rates overall. Our Ottawa office properties are doing well, as are our strip centres and our enclosed centres that are dominant in their respective markets. A diverse portfolio such as ours provides built-in resilience to market fluctuations. In 2018, the Trust continued to secure earning potential and income through the development and remerchandising of our retail properties. We continued to look for opportunities to intensify underutilized assets, including the vacant land around our retail centres as well as non-performing retail spaces. It’s a strategy that’s working. During the third and fourth quarters of 2018, 170,500 square feet of development projects began generating income for the Trust. We see these new streams of revenue as strong evidence that our development efforts will continue to grow in the future. Intensification of select properties is being considered, and we will continue to look for opportunities to grow value for our unitholders. The consistency with which Morguard Real Estate Investment Trust performed in 2018 is due, as always, to our excellent management team, committed employees, knowledgeable Trustees, and, of course, to you our loyal unitholders. Thank you for your ongoing support, as we continue to take action and find more opportunities to grow. Sincerely, K. RAI SAHI Chairman, President and Chief Executive Officer 1 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT SECTION 1 REAL ESTATE PORTFOLIO GROWING VALUE THROUGH ACTIVE MANAGEMENT Active Management may be the best way to describe how Morguard Real Estate Investment Trust performs, every day. 2018 saw the Trust maintain a solid real estate portfolio of three asset classes – retail, office and industrial – with a view to further enhance our properties and diversify our tenant base to maintain stable and growing cash flow over the long term. Our goal is to derive the greatest value possible from our extensive real estate portfolio. We apply innovative, forward thinking to enhance our properties. ST. L AURENT OT TAWA, ON 3 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIO SECTION 1 REAL ESTATE PORTFOLIO SINCE INCEPTION, OUR STRATEGY HAS BEEN TO PROVIDE STABLE CASH FLOW OVER TIME BY BUILDING A DIVERSE PORTFOLIO OF ASSETS. OPPORTUNITIES AS in British Columbia, Alberta, our revenue stream. Our Saskatchewan, Manitoba, multi-tenant properties Ontario and Quebec. have well-distributed lease expiration dates, helping Within an already diversified to minimize exposure to high portfolio is further diversification. Our 21 retail tenant turnover in a given year. assets, for example, include And like our office assets, two property categories: our industrial assets are enclosed full-scale shopping diversified across single- centres and community strip and multi-tenant properties. centres, providing the Trust The Trust holds five industrial with a broad base of tenants properties in the provinces to help to minimize exposure. of Ontario and Quebec. Likewise, our 23 office assets comprise single-tenant and multi-tenant properties. Typically under long-term leases, our single-tenant properties help to stabilize DIVERSE AS OUR PORTFOLIO Since our inception, our strategy has been to provide stable cash flow over time, and from our experience, the most effective way to achieve this is through diversification of assets. This is why the Trust owns a mix of three asset classes – retail, office and industrial – located in six provinces. As at December 31, 2018, the Trust owned 49 retail, office and industrial properties consisting of approximately 8.6 million square feet of gross leasable area (“GLA”) 4 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT CITADEL WEST CALGARY, AB 5 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIOSECTION 1: REAL ESTATE PORTFOLIO DIVERSIFICATION The Trust maintains a portfolio of holdings in three asset classes – retail, office and industrial – located in six Canadian provinces. Over the years, this diversification strategy has proven to be effective in helping ensure more consistent overall performance in the face of downturns that may occur in certain asset classes or markets. • 1 ASSET CLASSES 23 OFFICE 21 RETAIL 5 INDUSTRIAL 13 10 SINGLE TENANT MULTI TENANT 7 ENCLOSED SHOPPING CENTRES 14 COMMUNIT Y STRIP CENTRES • 2 GROSS LEASABLE AREA BY ASSET CLASS • 3 NET OPERATING INCOME BY ASSET CLASS 1 4,630,500 SF RETAIL 3,391,000 SF OFFICE 534,500 SF INDUSTRIAL 52% $79 MILLION RETAIL 46% $70 MILLION OFFICE 2% $3 MILLION INDUSTRIAL 6 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT 1. Excluding equity-accounted investment SECTION 1: REAL ESTATE PORTFOLIO • 4 ASSETS BY PROVINCE $3.0 6 BILLION IN REAL ESTATE ASSETS CANADIAN PROVINCES • 5 NET OPERATING INCOME BY PROVINCE 15% BRITISH COLUMBIA 5% SASKATCHEWAN 37% ONTARIO 29% ALBERTA 8% MANITOBA 6% QUEBEC 1. Excluding equity-accounted investment MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT 7  IN CANADA’S EVOLVING RETAIL MARKET, THE TRUST CONTINUES TO ADAPT AND ENHANCE ITS SHOPPING CENTRES TO RESPOND TO CONSUMER DEMAND. A NEW VISION FOR In 2018, our retail of new freestanding units now intensification initiatives being occupied by Cara brand reactivated 160,800 square restaurants. feet in two of the Trust’s shopping centres as well as In Kanata, ON, the Trust activating 22,700 square feet constructed a new freestanding in freestanding pad space. pad space comprising 9,700 square feet of GLA at Market The Trust completed the Square, adding significantly remerchandising of the former to the community strip centre. Target space at Cambridge Centre in Cambridge, ON – a total GLA of 126,800 square feet. This included space for Marshalls, Kingpin Bowling, Sport Chek and Indigo, all of The Trust is also investing approximately $43 million in renovation projects for The Centre, in Saskatoon, SK. These will include modernizing which have helped contribute the interior and exterior of to the revitalization of this the property, continuing the regional centre. development of a new Cineplex pad, and continuing the At Shoppers Mall, an enclosed retrofitting of the former Target regional shopping centre in store to accommodate new Brandon, MB, the Trust retail tenants. Each of these redeveloped 34,000 square initiatives will help further feet of GLA, remerchandising establish The Centre as a the remaining Target space to retail and entertainment house Shoppers Drug Mart and destination for the community. Ardene locations. An additional This work is expected to 13,000 square feet of GLA was be completed in phases – also added with the construction culminating in late 2020. AN EVOLVING RETAIL LANDSCAPE IN CANADA The diversity of our retail portfolio has enabled us to implement creative ideas that more closely align with current market trends. The Trust’s management team has taken two approaches to enhancing the retail portfolio. The first is to undertake select intensification initiatives to maximize the gross leasable area, thereby resulting in diverse sources of revenue. This means making the shopping malls more experiential as well as service oriented. The second approach involves the remerchandising of space vacated by major retailers such as Sears and Target. This has increased revenues coming from the same gross leasable area. The results are a more diverse tenant mix and increases in foot traffic, leading to more sales for all tenants. 8 $50 MILLION IN DEVELOPMENT INITIATIVES MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIOCAMBRIDGE CENTRE CAMBRIDGE, ON 9 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIO DEVELOPMENTS Our development program is focused on projects that are projected to create additional long-term value for our real estate portfolio, and that map to our long-term strategic objectives. Current development projects include initiatives to expand leasable area, redevelop an existing area, and retrofit existing facilities. In 2018, we invested $50 million in development initiatives. • 1 10 • 2 SECTION 1: REAL ESTATE PORTFOLIOMORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTPROPERT Y ASSET CL ASS DESCRIPTION • 1 • 2 • 3 • 4 Scotia Place Edmonton, AB Heritage Place Ottawa, ON Shoppers Mall Brandon, MB The Centre Saskatoon, SK Office Part of the ongoing transformation of downtown Edmonton, this 18-month renovation of the 567,000 square foot class-A office complex comprising two connected towers was completed in 2018. It was the Trust’s largest project to date in the city. Office In 2015, it was announced that one of Ottawa’s new LRT stations would be built into Heritage Place. Lobby renovations are currently underway as is the construction of the Parliament Station east entrance, located at 155 Queen Street. Parliament Station is expected to open in the second quarter of 2019. Retail The re-investment in the 367,000 square foot regional enclosed shopping centre included remerchandising two large-scale spaces to house a supermarket and gymnasium facility. Ninety per cent of the GLA is now income producing, with plans to further increase density with several new restaurants using the property’s parking lot. Retail A lease agreement with Cineplex for approximately 30,000 square feet has been executed, representing a new prototypical pad building development. The Cineplex pad building is scheduled to open late summer 2019. Additionally, new GoodLife Fitness and Ardene locations opened in the former Target space. • 3 • 4 11 SECTION 1: REAL ESTATE PORTFOLIOMORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT WOODBRIDGE SQUARE VAUGHAN, ON 12 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIOPORTFOLIO SUMMARY RETAIL PROPERTY CITY PROV. OWNERSHIP INTEREST (%) TOTAL AREA (SF) OWNERSHIP AREA (SF) OCCU- PANCY (%) TOP TENANTS Burquitlam Plaza Coquitlam BC 100 68,000 68,000 Pine Centre Mall Prince George BC 100 476,500 476,500 89 99 Bosley’s Pet Food Plus, CIBC, Dollarama, Shoppers Drug Mart, Value Village B.C. Liquor, Dollarama, Lowe’s, Shoppers Drug Mart, Sport Chek Shelbourne Plaza Victoria Airdrie Co-op Centre Airdrie Airdrie RONA Centre Heritage Towne Centre Airdrie Calgary BC AB AB AB 100 57,000 57,000 100 100 70,000 70,000 100 100 100 44,000 44,000 131,000 131,000 Prairie Mall Grande Prairie AB 50 263,000 131,500 Parkland Mall• 5 The Centre• 5 Shoppers Mall• 2 Red Deer Saskatoon Brandon Charleswood Centre Winnipeg Southdale Centre Winnipeg Aurora Centre Aurora Cambridge Centre• 2 Cambridge Market Square Kanata Wonderland Corners London AB SK MB MB MB ON ON ON ON 100 100 95 85 96 90 100 473,000 473,000 100 490,000 490,000 100 361,500 361,500 100 123,000 123,000 100 100 175,500 175,500 98 100 304,000 304,000 100 100 578,500 578,500 91 100 68,000 68,000 95 100 46,000 46,000 86% Kingsbury Centre Mississauga ON 100 70,000 70,000 Hampton Park Plaza Ottawa Home Base St. Laurent• 2 Ottawa Ottawa Woodbridge Square Vaughan ON ON ON ON 100 102,000 102,000 100 100 10,000 10,000 795,000 795,000 50 112,000 56,000 98 96 0 98 96 TOTAL RETAIL (21) 4,818,000 4,630,500 95 A&W, Fairway Market, Liquor Distribution Branch, Scotiabank, TD Canada Trust Co-Op Grocery Store, Co-Op Liquor Store, Heartland Veterinary Clinic, TD Canada Trust Lubexx, Rona, Tim Hortons Ashley Furniture, Country Furniture, Dollarama, Home Outfitters, Perfect Home Ardene, Dollarama, Marshalls, Shoppers Drug Mart, Urban Planet Business Depot, Dollarama, GoodLife Fitness, Staples, The Keg Steakhouse, Walmart Best Buy, GoodLife Fitness Centres, Saskatoon Co-op Food Store, Shoppers Drug Mart, Sport Chek Capitol Theatre, Dollarama, GoodLife Fitness, Sobeys Extra, Sport Chek Boston Pizza, Dollarama, Liquor Mart, Safeway, Shoppers Drug Mart Bank of Montreal, Dollarama, Pharma Plus, Walmart Canadian Tire, Cineplex Odeon, GoodLife Fitness, PetSmart, Sobeys Cambridge Ice Centre, Galaxy, Hudson’s Bay, Indigo, Kingpin Cambridge, Marshalls, Sport Chek Anytime Fitness, Bulk Barn, Farm Boy, LCBO, TD Canada Trust Congee Chan, Federated Insurance, Swiss Chalet, Wonder Sushi, YMCA of Western Ontario Buduchnist Credit Union, Cordi Italian Bakery, Longo’s, Pump On Rathburn, Shoppers Drug Mart East Side Mario’s, Food Basics, Ontario Breast Screening Program, Pharma Plus, Scotiabank Vacant Hudson’s Bay, Intact Financial Corp, Sport Chek, Toys “R” Us, Willis College Cucina Bella, Moose & Firkin, Nations Fresh Foods, Scotiabank, Wellmedica CERTIFICATIONS • 1 BOMA Platinum • 2 BOMA Gold • 3 BOMA Silver • 4 BOMA Bronze • 5 BOMA Certified • 6 LEED Gold • 7 LEED Silver • 8 Energy Star • 9 Bullfrog Powered 13 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIO HERITAGE PL ACE OT TAWA, ON 14 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIO OFFICE PROPERTY CITY PROV. OWNERSHIP INTEREST (%) TOTAL AREA (SF) OWNERSHIP AREA (SF) OCCU- PANCY (%) TOP TENANTS 111 Dunsmuir• 1 Chancery Place• 2 Seymour Place 207 and 215 9th Avenue SW • 2 • 8 505 3rd Street SW• 2 • 8 7315 8th Street NE Centre 810 Citadel West Deerport Centre• 3 Duncan Building National Bank Building Vancouver Vancouver Victoria Calgary Calgary Calgary Calgary Calgary Calgary Calgary Calgary Petroleum Plaza Edmonton Scotia Place• 2 Edmonton Ottawa Ottawa Ottawa Ottawa Ottawa Ottawa Ottawa Toronto Toronto 301 Laurier Avenue 525 Coventry Green Valley Office Park• 3 Heritage Place• 3 St. Laurent Business Centre• 3 Standard Life• 3 Time Square• 3 200 Yorkland• 3 77 Bloor Street West• 2 • 6 Place Innovation• 2 • 3 TOTAL OFFICE (23) BC BC BC AB AB AB AB AB AB AB AB AB AB ON ON ON ON ON ON ON ON ON 100 222,000 222,000 100 100 142,500 142,500 100 Fatburger, Ricky’s All Day Grill, Stantec Consulting Ltd, Wood Canada Limited Blair Shapera Custom Clothier, Boston Pizza, Ministry of Citizens’ Services, Studeo 55 Fitness Inc 235,500 235,500 100 Province of British Columbia 100 100 636,500 636,500 20 563,000 112,500 62 50 142,000 71,000 100 100 100 100 100 100 50 19,500 77,500 78,500 48,500 81,000 43,500 19,500 77,500 78,500 48,500 81,000 43,500 304,000 152,000 50 100 100 26,000 42,500 13,000 42,500 123,000 123,000 50 216,000 108,000 100 88,000 88,000 50 100 378,000 189,000 111,000 111,000 100 150,000 150,000 50 396,000 198,000 98 70 Downtown Dental, Engel & Volkers, Obsidian Energy Ltd, Sukiyaki House Restaurant Bank of China, Canadian Energy Pipeline Association, Morguard Investments Ltd 100 Genesis Land Development Corp 80 Canadian Cattle Identification Agency, CIMA Canada Inc, Skyplan Services Limited 100 CH2M Hill Canada Limited 59 100 100 99 Aerotek ULC, Colleaux Engineering Inc, Young Living Canada ULC RCMP National Bank of Canada Alberta Infrastructure, Olson’s Mercantile, Servus Credit Union Ltd APEGA, Bank of Nova Scotia, Davis Management Limited, Duncan and Craig, Grant Thornton 19 Moores The Suit People 100 Assent Compliance Inc Canadian Physiotherapy Association, The Ottawa Fertility Centre Inc Modis Canada Inc, PCL Constructors Canada Inc, The Dominion of Canada General Insurance CBI Limited Partnership, Intact Insurance Company, RJR Innovations Inc, Syglam Inc Public Works BBB Urban Developments Ottawa Inc, GRC Architects Inc, Le Droit, The Red Lion AG Simpson Automotive Inc, Ferring Inc, Investors Group Financial Services Harry Rosen, TD Waterhouse Inv Serv Inc, The Toronto Dominion Bank Bombardier Inc, Ciena Canada Inc, Lockheed Martin Canada Inc 84 91 76 98 85 90 96 97 93 Saint-Laurent QC 50 896,000 448,000 5,020,500 3,391,000 INDUSTRIAL PROPERTY CITY PROV. 1875 Leslie 2041-2151 McCowan 279 Yorkland 285 Yorkland 825 Des Érables Toronto Toronto Toronto Toronto Salaberry-de- Valleyfield ON ON ON ON QC OWNERSHIP INTEREST (%) TOTAL AREA (SF) OWNERSHIP AREA (SF) OCCU- PANCY (%) TOP TENANTS 100 100 100 100 50 52,000 52,000 100 Body and Soul Fitness Corp, Goose and Firkin 197,000 197,000 77 Every Green International Inc, Paragon Industrial Photographic, TuxMat, Yao Yee Trading Inc. 18,000 25,000 18,000 25,000 485,000 242,500 100 100 100 Arz Fine Foods Express Ltd The Mitchell Partnership Inc Diageo TOTAL INDUSTRIAL (5) 777,000 534,500 92 CERTIFICATIONS • 1 BOMA Platinum • 2 BOMA Gold • 3 BOMA Silver • 4 BOMA Bronze • 5 BOMA Certified • 6 LEED Gold • 7 LEED Silver • 8 Energy Star • 9 Bullfrog Powered 15 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 1: REAL ESTATE PORTFOLIO  SECTION 2 FINANCIAL HIGHLIGHTS GENERATING REVENUE THROUGH A COMMITMENT TO QUALITY The REIT’s primary goal is to accumulate a Canadian portfolio of high-quality real estate assets, delivering the benefits of its asset ownership to unitholders. Investing in our properties, and responding intelligently to market demands will ensure positive results for the long term.  SECTION 2 FINANCIAL HIGHLIGHTS WE EXPECT TO SEE CONTINUING POSITIVE IMPACT TO OUR REVENUE AS MORE OF OUR DEVELOPMENT INITIATIVES BECOME ACTIVE. NET OPERATING INCOME STEADY PERFORMANCE This includes having an For 2018, our total net operating FOR UNITHOLDERS appropriate balance between income was $152.0 million, Throughout the year, we different types of debt, and compared with $157.0 million continued to make monthly maintaining an appropriate in 2017. While many properties distributions to our unitholders. ratio of debt to total assets. in our portfolio maintained consistent performance as they have year after year, we continued to be challenged Since inception, our distributions have held steady or increased, but have never lessened. The Trust’s monthly by the economic downturn in distribution to unitholders in Alberta. At the same time, our 2018 was $0.08 per unit, development projects – a total representing $0.96 per unit of 170,500 square feet – on an annualized basis. The began generating revenue in distributions represented the third and fourth quarters of 84.2% of the adjusted funds 2018, helping to contribute to from operations, compared to overall revenue. We expect to 77.4% in 2017. see even more positive impact to our revenue as more of our development initiatives come on stream. PRUDENT, MEASURED PORTFOLIO OVERSIGHT The ongoing objective for the Trust is to manage the portfolio as prudently as possible. The Trust’s debt ratio at December 31, 2018 was 45.1%, compared to 44.5% in 2017. This slight increase is due, in part, to the ongoing development of many properties within the portfolio, and the two to three years it typically takes to repurpose large-format retail spaces such as those vacated by Target in 2016 and 2017. 17 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT FINANCIAL HIGHLIGHTS • 1 • 2 • 3 • 6 • 4 • 5 AS AT DECEMBER 31 2014 2015 2016 2017 2018 Revenue from real estate properties $298,461 $290,982 $280,726 $278,754 $276,473 Net operating income 169,739 165,930 160,500 157,025 152,078 Funds from operations 106,516 106,385 113,500 100,766 94,992 Adjusted funds from operations 1, 2 78,973 79,208 87,091 74,983 69,394 Funds from operations – Basic per unit $1.71 $1.72 $1.87 $1.66 $1.56 Adjusted funds from operations 1, 2 – Basic per unit $1.27 $1.28 $1.43 $1.24 $1.14 Cash Distributions per unit $0.96 $0.96 $0.96 $0.96 $0.96 Total assets $3,016,496 $2,920,155 $3,034,190 $2,921,091 $2,978,573 Total debt $1,364,029 $1,349,254 $1,427,742 $1,300,102 $1,344,068 Total equity $1,607,081 $1,556,140 $1,555,183 $1,565,591 $1,580,414 Weighted average number of units as at year-end (in thousands) – Basic 62,168 61,779 60,750 60,622 60,705 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. 2. The Trust uses normalized productive capacity maintenance expenditures to calculate adjusted funds from operations. 18 SECTION 2: FINANCIAL HIGHLIGHTSMORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT  • 1 REVENUE FROM REAL ESTATE PROPERTIES IN MILLIONS OF DOLL ARS • 2 NET OPERATING INCOME IN MILLIONS OF DOLL ARS • 3 FUNDS FROM OPERATIONS IN MILLIONS OF DOLL ARS 8 9 2 $ 1 9 2 $ 1 8 2 $ 9 7 2 $ 6 7 2 $ 0 7 1 $ 6 6 1 $ 1 6 1 $ 7 5 1 $ 2 5 1 $ 7 0 1 $ 6 0 1 $ 4 1 1 $ 1 0 1 $ 5 9 $ 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 • 4 TOTAL ASSETS IN BILLIONS OF DOLL ARS • 5 TOTAL EQUITY IN BILLIONS OF DOLL ARS • 6 CASH DISTRIBUTIONS PER UNIT . 0 3 $ . 9 2 $ . 0 3 $ . 9 2 $ . 0 3 $ . 6 1 $ . 6 1 $ . 6 1 $ . 6 1 $ . 6 1 $ . 6 9 0 $ . 6 9 0 $ . 6 9 0 $ . 6 9 0 $ 6 9 0 $ . 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 19 SECTION 2: FINANCIAL HIGHLIGHTSMORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT  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 2018 FINANCIALS 2018 2017 $2,915,592 24,746 2,940,338 17,016 10,000 567 10,652 38,235 $2,861,816 27,080 2,888,896 16,601 — 842 14,752 32,195 Total assets $2,978,573 $2,921,091 $913,490 168,814 4,282 1,086,586 194,104 49,809 — 67,660 311,573 1,398,159 1,580,414 $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 $2,978,573 $2,921,091 LIABILITIES AND UNITHOLDERS’ EQUITY Non-current liabilities Mortgages payable Convertible debentures Accounts payable and accrued liabilities Current liabilities Mortgages payable Accounts payable and accrued liabilities Loan payable Bank indebtedness Total liabilities Unitholders’ equity 20 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 2: FINANCIAL HIGHLIGHTS 2018 FINANCIALS 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 costs Property operating expenses Property taxes Property management fees Interest expense General and administrative Other income Income before fair value losses and net (loss)/income from equity-accounted investment Fair value losses on real estate properties Net (loss)/income from equity-accounted investment Net income and comprehensive income NET INCOME PER UNIT Basic Diluted 2018 2017 $276,473 $278,754 64,137 51,083 9,175 152,078 55,648 4,781 (106) 62,218 50,345 9,166 157,025 55,087 4,517 (179) 91,755 97,600 (18,602) (138) $73,015 $1.20 $1.12 (31,225) 931 $67,306 $1.11 $1.05 21 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 2: FINANCIAL HIGHLIGHTS  STATEMENTS OF UNITHOLDERS’ EQUITY IN THOUSANDS OF CANADIAN DOLL ARS, EXCEPT NUMBER OF UNITS NUMBER OF UNITS ISSUE OF UNITS RETAINED EARNINGS EQUIT Y COMPONENT OF CONVERTIBLE DEBENTURES CONTRIBUTED SURPLUS TOTAL UNITHOLDERS’ EQUIT Y Unitholders’ equity, January 1, 2017 60,600,707 $610,499 $938,226 $6,120 $338 $1,555,183 CHANGES DURING THE YEAR: Repurchase of units 2012 Debentures converted 2012 Debentures redeemed Net income Distributions to unitholders Issue of units – DRIP1 (50,300) (507) (259) 731 — — — 18 — — — — — 67,306 (56,150) 140,591 2,053 (2,053) — — — — (1,526) 1,526 — — — — — — (766) 18 — 67,306 (56,150) — Unitholders’ equity, December 31, 2017 60,691,729 612,063 947,070 4,594 1,864 1,565,591 CHANGES DURING THE YEAR: Repurchase of units Net income Distributions to unitholders Issue of units – DRIP1 (37,100) (375) (36) — — — — 73,015 (57,781) 39,424 495 (495) — — — — — — — — (411) 73,015 (57,781) — Unitholders’ equity, December 31, 2018 60,694,053 $612,183 $961,773 $4,594 $1,864 $1,580,414 1. Distribution Reinvestment Plan (“DRIP”) 22 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 2: FINANCIAL HIGHLIGHTS  STATEMENTS OF CASH FLOWS IN THOUSANDS OF CANADIAN DOLL ARS FOR THE YEAR ENDED DECEMBER 31, 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 costs 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 Increase in loan receivable 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 Expenditures on properties under development Cash used in investing activities Net change in cash Cash, beginning of period Cash, end of period 2018 2017 $73,015 20,910 2,196 (2,452) (195) 93,474 118,241 (685) (54,584) (36,333) — — 49,799 (10,000) 42,500 (77,500) (57,781) (411) (26,754) (20,932) (49,888) (70,820) (4,100) 14,752 $10,652 $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) (20,832) (40,999) (61,831) (97,944) 112,696 $14,752 23 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORTSECTION 2: FINANCIAL HIGHLIGHTS CORPORATE INFORMATION TRUSTEES OFFICERS INVESTOR INFORMATION K. Rai Sahi President and Chief Executive Officer Andrew Tamlin Chief Financial Officer Beverley G. Flynn Senior Vice President, General Counsel and Secretary Paul Miatello Senior Vice President Angela Sahi Senior Vice President Robert D. Wright Vice President Michael A.J. Catford1, 2, 3 Real Estate Consultant Paul F. Cobb1, 2, 3 Corporate Director Graeme M. Eadie1, 3 Senior Advisor, CPPIB Edward C. Kress1, 2, 3 Corporate Director Brookfield Group Bart S. Munn1, 2 Corporate Director K. Rai Sahi Chairman and Chief Executive Officer Morguard Corporation Antony K. Stephens 1, 3 Corporate Director Timothy J. Walker 1, 2, 3 Corporate Director 1 Independent Trustee 2 Audit Committee 3 Human Resources and Governance Committee 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 Eligibility 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 Investor Relations Visit our website at www.morguard.com or view our filings on SEDAR at www.sedar.com. Annual Unitholder Meeting Wednesday May 8, 2019 at 9:45 a.m. Rattlesnake Point Golf Club, 5407 Regional Road 25, Milton, ON L9T 2X5 For Additional Information, Contact Beverley G. Flynn Senior Vice President, General Counsel and Secretary T 905-281-4800 info@morguard.com Andrew Tamlin Chief Financial Officer T 905-281-4800 info@morguard.com 24 MORGUARD REAL ESTATE INVESTMENT TRUST 2018 ANNUAL REPORT 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 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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