ONGOING EXPLORATION OF PROFITABLE ACQUISITIONS, AN EXPANDING PORTFOLIO OF DIVERSE ASSETS AND PRUDENT INVESTMENT MANAGEMENT HAVE ENABLED MORGUARD CORPORATION TO BE STRONGER TOGETHER. 2017 ANNUAL REPORT ON THE COVER ALTA AT K STATION CHICAGO, IL STRONGER TOGETHER True strength comes from an ability to consistently work together. At Morguard, we are constantly seeking ways to grow our investment portfolio, exploring a wide range of real estate acquisitions ASSET INVESTMENTS ACQUISITIONS MANAGEMENT with the potential to increase in value year over year. To achieve this, we work as a coordinated team, often in joint ventures, while applying a judicious investment strategy to derive JOINT VENTURES COMMUNITIES DEVELOPMENT the greatest value from our properties. At the same time, we invest in our properties, seeking ways to integrate them into local communities, helping ensure greater sustainability, providing LEASING TENANT SERVICES SUSTAINABILITY enhanced tenant services, and making ongoing capital improvements to further increase their value. FELLOW SHAREHOLDERS 2017 has proven to be another successful year for Morguard Corporation, and I am very pleased to share our strong financial performance in this year’s annual report with you, our fellow shareholders. In 2017, we undertook aggressive leasing activities, upgrades to our property portfolio, a variety of development and acquisition programs, and strengthened our capital base. Thinking back on the past year, I believe the reason for our success is threefold – a powerful combination of our: 1. diversified real estate portfolio of high-quality assets; 2. superior investment management and development expertise, aimed at creating value in the portfolio; and 3. ongoing approach to further expand the portfolio through acquisitions across North America. At the same time, we were able to take advantage of the healthy North American economy. There was considerable demand for prime office space and high-quality residential rental accommodation. Interest rates, even though they moved slightly upwards, remained near historically low levels. Alberta showed some signs of recovery although we continue to monitor this market. As a result, Morguard continued to demonstrate solid earnings performance in 2017, and equally solid gains in net asset value. Our successful initiatives will lead us into 2018 with a strong position to take advantage of more real estate opportunities as they arise. Our prime objective in the year ahead – as always – is to grow shareholder value. I’m particularly proud of Morguard’s strong management team and our dedicated employees, and I deeply appreciate the support and counsel of our extraordinarily accomplished Directors. I extend my sincere thanks to each of them, and to each of you, our loyal shareholders. Given the Company’s achievements to date, Morguard Corporation can look to the future with confidence knowing that we’re stronger together. Sincerely, K. RAI SAHI CHAIRMAN AND CHIEF EXECUTIVE OFFICER 2 MORGUARD CORPORATION 2017 ANNUAL REPORT FINANCIAL HIGHLIGHTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS AS AT DECEMBER 31 2013 2014 2015 2016 2017 Total assets $5,452,995 $7,993,6 8 4 $8,602,132 $9,558,078 $10,111,986 Indebtedness $2,371,833 $3,793,959 $4,183,810 $4,778,750 $4,935,454 Indebtedness to total assets 44% 48% 49% 50% 49% Shareholders’ equity $2,329,972 $2,498,605 $2,697,724 $2,862,812 $3,082,673 Number of common shares (in thousands) 12,586 12,353 11,993 11,929 11,842 Shareholders’ equity, per common share $185.12 $202.27 $224.94 $239.98 $260.32 TSX price $125.39 $150.00 $133.00 $175.90 $179.48 Equity market capitalization $1,578,159 $1,852,950 $1,595,069 $2,098,311 $2,125,402 FOR THE YEARS ENDED DECEMBER 31 2013 2014 2015 2016 2017 Revenue from real estate properties $382,877 $426,667 $762,033 $775,746 $790,535 Revenue from hotel properties $34,499 $46,141 $46,562 $66,567 $237,116 Total revenue $516,882 $566,326 $883,559 $921,976 $1,113,774 Net operating income $201,496 $241,193 $435,899 $453,398 $513,867 Net income $287,947 $137,257 $103,520 $209,924 $344,367 Funds from operations – basic $153,073 $152,053 $183,139 $213,282 $225,072 Funds from operations per share – basic $12.07 $12.14 $14.96 $17.86 $18.94 $1,114 $514 $225 $213 $453 $922 $436 $884 $183 $153 $152 $566 $517 $241 $201 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 TOTAL REVENUE NET OPERATING INCOME FUNDS FROM OPERATIONS IN MILLIONS OF DOLLARS IN MILLIONS OF DOLLARS IN MILLIONS OF DOLLARS MORGUARD CORPORATION 2017 ANNUAL REPORT 3 ASSETS BY REGION ASSET AS AT DECEMBER 31, 2017 MANAGEMENT Perhaps the most important reason for Morguard’s success is our focus on asset 73% management. Our philosophy: maximize value CANADA % and returns through value creation. We make this 27 U.S. happen through our considerable expertise in operational oversight and proactive management. We’re always finding ways to further develop, improve or intensify our properties, while actively seeking synergies within our operations across Canada and the United States. Working together across teams and disciplines LEFT TO RIGHT enables us to create operational economies. 77 CITY CENTRE DRIVE MISSISSAUGA, ON Ultimately, we believe that strong leasing, PERFORMANCE COURT tenant satisfaction and a focus on sustainability OTTAWA, ON THE MARQUEE AT BLOCK 37 can all contribute to maximizing returns. CHICAGO, IL ASSET INVESTMENTS ACQUISITIONS MANAGEMENT JOINT VENTURES COMMUNITIES DEVELOPMENT LEASING TENANT SUSTAINABILITY SERVICES 2017 HIGHLIGHTS GROWTH IN THE SIZE AND VALUE OF OUR PORTFOLIO $260 $240 STRONGER IN FINANCIAL RESULTS $225 $202 $185 Among our achievements in 2017, Morguard Corporation saw its total assets grow to $10.1 billion at the 2017 year-end, with a compound annual growth rate of 18% over the past five years. We also saw increases in funds from operations, gains in total revenues, and growth in net operating income. The reasons? We benefited from increases in both Canadian and U.S. rental rates, as well as from enhanced operating efficiencies within our multi-suite residences. While there was a decrease in net operating income within our retail holdings due to increased vacancy rates, it was partly offset by gains in the multi-suite residential, hotel and office sectors. 13 14 15 16 17 Our goal is always to deliver long-term results for our shareholders, and this year, Morguard’s SHAREHOLDER EQUITY PER COMMON SHARE common share value rose to $179.48 from $175.90 a year earlier. Over the past 10 years, the compound annual growth rate of Morguard’s stock has been 16%. AS AT DECEMBER 31 DIVERSE PORTFOLIO OF REAL ESTATE STRONGER IN PORTFOLIO PERFORMANCE 36% RESIDENTIAL 27% RETAIL Morguard Corporation together with Morguard North American Residential REIT, Morguard REIT 24% OFFICE 12% HOTEL and Temple Hotels Inc. owns a diversified portfolio of multi-suite residential, retail, office, industrial 1% INDUSTRIAL and hotel properties in Canada and in the United States. The real estate portfolio comprises a variety of high-, mid-, and low-rise multi-suite residential properties, enclosed regional shopping centres, community retail strip centres, single- and multi-tenant office buildings, industrial properties, and hotels. These properties are located in eight Canadian provinces and ten NET OPERATING INCOME American states. Supporting these operations is an executive team that has deep and varied BY ASSET CLASS experience in real estate investment management. Frequently working alongside a select group FOR THE YEAR ENDED of joint venture partners, the team has timely access to new investment opportunities for DECEMBER 31, 2017 development or acquisition. Our revenue is earned from a number of sources, including operating income from our diverse properties in both Canada and the United States, and fees from our advisory and management services. This diversification has helped make our financial performance more reliable over time, providing insulation from downturns in any given asset class or region. Operational excellence has been the key to optimizing profitability of our portfolio. We take a proactive role in leasing 75% CANADA our properties while keeping close control of operating costs, investing in capital improvements 25% U.S. to enhance portfolio value, operating our properties sustainably, and managing our capital. We also work collaboratively with employees, tenants, clients and joint venture partners to define goals and actions in a formal plan comprising environmental, social and governance initiatives. Morguard is committed to using Natural Resources Canada’s Energy Star Portfolio Manager for all NET OPERATING INCOME of our Canadian-owned and managed office, retail, industrial and multi-suite residential properties. BY REGION FOR THE YEAR ENDED DECEMBER 31, 2017 6 MORGUARD CORPORATION 2017 ANNUAL REPORT LEFT TO RIGHT CREEKSIDE CORPORATE CENTRE TORONTO, ON THE HEATHVIEW TORONTO, ON GREATER OPPORTUNITY THROUGHOUT NORTH AMERICA $650M STRONGER IN ACQUISITIONS TOTAL ACQUISITIONS IN 2017 OFFICE ACQUISITIONS In 2017, Morguard Corporation acquired several office properties for its own portfolio. These properties were acquired in promising suburban markets within the greater Ottawa and Toronto regions where tenant demand is particularly strong. These acquisitions further strengthened Morguard’s $21.2B well-diversified portfolio. ASSETS OWNED AND UNDER MANAGEMENT The largest acquisition was 123 Commerce Valley Drive, an eight-storey Class A suburban office building with 203,500 square feet on 10.6 acres of land, located in Markham, just outside of Toronto. Purchased for $67.9 million, it has a well-established and diverse tenant base, and is expected to provide steady cash flow and return on investment. There is also significant opportunity for additional OFFICE future development, with in-place zoning, surplus density, and existing parking offering the potential ACQUISITIONS for an additional 270,000 square feet of office space on the property.