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Morguard North American Residential REIT Announces 2022 Second Quarter Results - Jul 26, 2022

Morguard North American Residential REIT Announces 2022 Second Quarter Results

Jul 26, 2022

MISSISSAUGA, ON, July 26, 2022 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three and six months ended June 30, 2022.

Highlights

The REIT is reporting second quarter performance of:

  • Net operating income ("NOI") of $42.5 million for the three months ended June 30, 2022, an increase of $5.1 million, or 13.6% compared to 2021. The change in foreign exchange rate increased NOI by $1.7 million.
  • Same Property Proportionate NOI in the U.S. increased by 16.0%, and in Canada increased by 5.4%, compared to 2021.
  • Net income of $166.5 million for the three months ended June 30, 2022, an increase of $146.3 million, compared to 2021. The increase in net income is predominantly due to a higher non-cash fair value gain on real estate properties as well as an increase in fair value gain on Class B LP Units, partially offset by an increase in deferred income tax.
  • Basic funds from operations ("FFO") of $19.8 million for the three months ended June 30, 2022, an increase of $3.7 million, or 23.0% over the same period in 2021.
  • Basic FFO of $0.35 per Unit for the three months ended June 30, 2022, a 20.7% increase as compared to the $0.29 in 2021. 
  • FFO payout ratio for the three months ended June 30, 2022 of 46.7% compared to 61.0% in 2021.

The REIT is reporting the following corporate and portfolio highlights:

  • On April 29, 2022, the REIT completed the refinancing of a multi-suite residential property located in West Palm Beach, Florida, in the amount of $19.5 million (US$15.2 million) at an interest rate of 3.89% and for a term of 10 years. The maturing mortgage amounts to $11.7 million (US$9.1 million), was open and prepayable at no penalty before its scheduled maturity on August 1, 2022, and had an interest rate of 3.96%.
  • On June 6, 2022, the REIT sold a multi-suite residential property located in Atlanta, Georgia, comprising of 292 suites, for net proceeds of $93.2 million (US$74.2 million), including closing costs and repaid the mortgage payable secured by the property in the amount of $27.0 million (US$21.5 million).
  • During the second quarter, the REIT entered into agreements to sell a property located in Slidell, Louisiana, comprising 144 suites, and a property located in Coconut Creek, Florida, comprising 340 suites, providing net proceeds of $114.9 million (US$89.2 million), excluding closing costs and after the repayment of mortgage payable secured by the property. The REIT expects to close the sale of these properties during the third quarter.
  • As at June 30, 2022, average monthly rent ("AMR") in the U.S., on a Same Property basis, increased by 13.0% compared to June 30, 2021, while occupancy was 96.5% at June 30, 2022, compared to 96.8% at June 30, 2021.
  • As at June 30, 2022, AMR in Canada increased by 3.0% compared to June 30, 2021, while occupancy improved to 95.2% at June 30, 2022, compared to 91.8% at June 30, 2021.
  • As at June 30, 2022, indebtedness to gross book value ratio of 35.6%, lower compared to 40.2% as at December 31, 2021.
  • As at June 30, 2022, the REIT's total assets were valued at $3.9 billion compared to $3.5 billion as at December 31, 2021.

 

Financial and Operational Highlights

As at

June 30,

December 31,

June 30,

(In thousands of dollars, except as otherwise noted)

2022

2021

2021

Operational Information

     

Number of properties

42

43

43

Total suites

12,983

13,275

13,275

       

Occupancy percentage – Canada

95.2 %

93.6 %

91.8 %

Occupancy percentage – U.S.

96.4 %

96.3 %

95.9 %

Average monthly rent - Canada (in actual dollars)

$1,565

$1,535

$1,520

Average monthly rent - U.S. (in actual U.S. dollars)

US$1,636

             US$1,525

US$1,438

       

Summary of Financial Information

     

Gross book value(1)

$3,856,408

$3,473,287

$3,101,841

Indebtedness(1)

$1,371,845

$1,395,438

$1,283,230

       

Indebtedness to gross book value ratio(1)

35.6 %

40.2 %

41.4 %

Weighted average mortgage interest rate

3.31 %

3.31 %

3.45 %

Weighted average term to maturity on mortgages payable (years)

4.6

5.0

4.3

Exchange rates - United States dollar to Canadian dollar

$1.29

$1.27

$1.24

Exchange rates - Canadian dollar to United States dollar

$0.78

$0.79

$0.81

(1)

Represents a non-GAAP financial measure/ratio that does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. This measure should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS.

 

 

      Three months ended

   Six months ended

 

      June 30

 June 30

(In thousands of dollars, except per Unit amounts)

2022

2021

2022

2021

Summary of Financial Information

       

Revenue from real estate properties

$67,392

$59,814

$132,649

$120,136

NOI

$42,456

$37,373

$59,880

$52,557

Proportionate NOI(1)

$37,101

$32,399

$72,228

$64,217

Same Property Proportionate NOI(1)

$36,344

$31,757

$70,355

$62,960

NOI margin – IFRS

63.0 %

62.5 %

45.1 %

43.7 %

NOI margin – Proportionate(1)

54.1 %

53.3 %

53.5 %

52.7 %

Net income

$166,550

$20,269

$337,692

$47,664

         

FFO – basic(1)

$19,833

$16,128

$38,140

$31,747

FFO – diluted(1)

$20,792

$17,087

$40,042

$33,649

FFO per Unit – basic(1)

$0.35

$0.29

$0.68

$0.56

FFO per Unit – diluted(1)

$0.34

$0.28

$0.66

$0.56

Distributions per Unit

$0.1749

$0.1749

$0.3498

$0.3498

FFO payout ratio(1)

49.7 %

61.0 %

51.6 %

62.0 %

Weighted average number of Units outstanding (in thousands):

       

Basic

56,304

56,260

56,298

56,254

Diluted

60,537

60,493

60,531

60,487

Average exchange rates - United States dollar to Canadian dollar

$1.28

$1.23

$1.27

$1.25

Average exchange rates - Canadian dollar to United States dollar

$0.78

$0.81

$0.79

$0.80

(1)

Represents a non-GAAP financial measure/ratio that does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. This measure should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS.

 

Specified Financial Measures 
The REIT reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, this earnings release also uses specified financial measures that are not defined by IFRS, which follow the disclosure requirements established by National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. Specified financial measures are categorized as non-GAAP financial measures, non-GAAP ratios, and other financial measures. Additional details on specified financial measures including supplementary financial measures, capital management measures and total segment measures are set out in the REIT's Management's Discussion and Analysis for the three and six months ended June 30, 2022 and available on the REIT's profile on SEDAR at www.sedar.com.

The following Non-GAAP financial measures do not have any standardized 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 as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. The REIT's management uses these measures to aid in assessing the REIT's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP financial measures, which supplement the IFRS measures, provide readers with a more comprehensive understanding of management's perspective on the REIT's operating results and performance.

A reconciliation of each non-GAAP financial measure referred to in this earnings release is provided below.

Proportionate Share NOI ("Proportionate NOI") & Same Property Proportionate NOI 
Proportionate NOI and Same Property Proportionate NOI are important measures in evaluating the operating performance of the REIT's real estate properties and are a key input in determining the fair value of the REIT's properties. Proportionate NOI represents NOI (an IFRS measure) adjusted for the following: i) to exclude the impact of realty taxes accounted for under International Financial Reporting Interpretations Committee ("IFRIC") Interpretation 21, Levies ("IFRIC 21"). Proportionate NOI records realty taxes for all properties on a pro rata basis over the entire fiscal year; ii) to exclude the non-controlling interest share of NOI for those properties that are consolidated under IFRS ("NCI Share"); and iii) to include equity-accounted investments NOI at the REIT's ownership interest ("Equity Interest").

Same Property Proportionate NOI is presented in this earnings release because management considers this non-GAAP measure to be an important measure of the REIT's operating performance, representing Proportionate NOI for properties owned by the REIT continuously for the current and comparable reporting period and does not take into account the impact of the operating performance of property acquisitions and dispositions as well as development properties until reaching stabilized occupancy. In addition, Same Property Proportionate NOI is presented in local currency and by country, isolating any impact of foreign exchange fluctuations.

The following tables provide a reconciliation of Proportionate Share NOI and Same Property Proportionate Share NOI to its closely related financial statement measurement for the following periods:

         

2022

       

2021

   

Non-GAAP Adjustments

   

Non-GAAP Adjustments

 

For the three months ended

       

Proportionate

       

Proportionate

  June 30

 

NCI

Equity

 

Basis

 

NCI

Equity

 

Basis

(In thousands of dollars)

IFRS

Share

Interest

IFRIC 21

(Non-GAAP)

IFRS

Share

Interest

IFRIC 21

(Non-GAAP)

Revenue from properties

                   

Same Property

$65,567

($3,742)

$4,926

$—

$66,751

$58,107

($3,216)

$4,184

$—

$59,075

Disposition/Development

1,825

1,825

1,707

1,707

Total revenue from properties

67,392

(3,742)

4,926

68,576

59,814

(3,216)

4,184

60,782

Property operating expenses

                   

Same Property

24,058

(1,095)

1,579

5,865

30,407

21,626

(1,025)

1,051

5,666

27,318

Disposition/Development

878

190

1,068

815

250

1,065

Total property operating expenses

24,936

(1,095)

1,579

6,055

31,475

22,441

(1,025)

1,051

5,916

28,383

NOI

                   

Same Property

41,509

(2,647)

3,347

(5,865)

36,344

36,481

(2,191)

3,133

(5,666)

31,757

Disposition/Development

947

(190)

757

892

(250)

642

Total NOI

$42,456

($2,647)

$3,347

($6,055)

$37,101

$37,373

($2,191)

$3,133

($5,916)

$32,399

NOI Margin

63.0 %

     

54.1 %

62.5 %

     

53.3 %

 

         

2022

       

2021

   

Non-GAAP Adjustments

   

Non-GAAP Adjustments

 

For the six months ended

       

Proportionate

       

Proportionate

  June 30

 

NCI

Equity

 

Basis

 

NCI

Equity

 

Basis

(In thousands of dollars)

IFRS

Share

Interest

IFRIC 21

(Non-GAAP)

IFRS

Share

Interest

IFRIC 21

(Non-GAAP)

Revenue from properties

                   

Same Property

128,476

($7,197)

$9,631

$—

$130,910

$116,886

($6,446)

$8,085

$—

$118,525

Disposition/Development

4,173

4,173

3,250

3,250

Total revenue from properties

132,649

(7,197)

9,631

135,083

120,136

(6,446)

8,085

121,775

Property operating expenses

                   

Same Property

69,907

(4,660)

6,979

(11,671)

60,555

65,063

(4,477)

6,260

(11,281)

55,565

Disposition/Development

2,862

(562)

2,300

2,516

(523)

1,993

Total property operating expenses

72,769

(4,660)

6,979

(12,233)

62,855

67,579

(4,477)

6,260

(11,804)

57,558

NOI

                   

Same Property

58,569

(2,537)

2,652

11,671

70,355

51,823

(1,969)

1,825

11,281

62,960

Disposition/Development

1,311

562

1,873

734

523

1,257

Total NOI

$59,880

($2,537)

$2,652

$12,233

$72,228

$52,557

($1,969)

$1,825

$11,804

$64,217

NOI Margin

45.1 %

     

53.5 %

43.7 %

     

52.7 %

 

Funds From Operations 
FFO (and FFO per Unit) is a non-GAAP financial measure widely used as a real estate industry standard that supplements net income and evaluates operating performance but is not indicative of funds available to meet the REIT's cash requirements. FFO can assist with comparisons of the operating performance of the REIT's real estate between periods and relative to other real estate entities. FFO is computed by the REIT in accordance with the current definition of the Real Property Association of Canada ("REALPAC") and is defined as net income attributable to Unitholders adjusted for fair value adjustments, distributions on the Class B LP Units, realty taxes accounted for under IFRIC 21, deferred income taxes (on the REIT's U.S. properties), gains/losses on the sale of real estate properties (including income taxes on the sale of real estate properties) and other non-cash items. The REIT considers FFO to be a useful measure for reviewing its comparative operating and financial performance. FFO per Unit is calculated as FFO divided by the weighted average number of Units outstanding (including Class B LP Units) during the period.

The following table provides a reconciliation of FFO to its closely related financial statement measurement for the following periods:

 

Three months ended June 30

Six months ended June 30

(In thousands of dollars, except per Unit amounts)

2022

2021

2022

2021

Net income for the period attributable to Unitholders

$162,601

$18,765

$325,031

$45,774

Add/(deduct):

       

Realty taxes accounted for under IFRIC 21

(6,055)

(5,916)

12,233

11,804

Fair value loss (gain) on conversion option on the convertible debentures

(3,297)

618

(1,147)

195

Distributions on Class B LP Units recorded as interest expense

3,013

3,013

6,025

6,025

Foreign exchange loss (gain)

(32)

15

(17)

38

Fair value gain on real estate properties, net

(111,655)

(31,820)

(362,132)

(61,933)

Non-controlling interests' share of fair value gain on real estate

   properties

2,247

230

11,997

1,774

Fair value loss (gain) on Class B LP Units

(55,631)

21,184

(22,907)

14,640

Deferred income tax provision

28,642

10,039

69,057

13,430

FFO - basic

$19,833

$16,128

$38,140

$31,747

Interest expense on the convertible debentures

959

959

1,902

1,902

FFO - diluted

$20,792

$17,087

$40,042

$33,649

FFO per Unit - basic

$0.35

$0.29

$0.68

$0.56

FFO per Unit - diluted

$0.34

$0.28

$0.66

$0.56

         

Weighted average number of Units outstanding (in thousands):

       

Basic

56,304

56,260

56,298

56,254

Diluted

60,537

60,493

60,531

60,487

 

Indebtedness and Gross Book Value 
Indebtedness (as defined in the REIT's Declaration of Trust) is a measure of the amount of debt financing utilized by the REIT. Indebtedness is presented in this earnings release because management considers this non-GAAP financial measure to be an important measure of the REIT's financial position.

Gross book value (as defined in the REIT's Declaration of Trust) is a measure of the value of the REIT's assets. Gross book value is presented in this earnings release because management considers this non-GAAP financial measure to be an important measure of the REIT's asset base and financial position.

The following table provides a reconciliation of gross book value and indebtedness as defined in the REIT's Declaration of Trust from their IFRS financial statement presentation:

As at

June 30,

December 31,

(In thousands of dollars)

2022

2021

Total Assets / Gross book value

$3,856,408

$3,473,287

Mortgage payable

$1,265,892

$1,288,555

Add: deferred financing costs

11,240

12,318

 

1,277,132

1,300,873

Convertible debentures, face value

85,500

85,500

Lease liability

9,213

9,065

Indebtedness

$1,371,845

$1,395,438

Indebtedness / Gross book value

35.6 %

40.2 %

 

Non-GAAP Ratios 
Non-GAAP ratios do not have any standardized 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 as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. The REIT's management uses these measures to aid in assessing the REIT's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP ratios described below, provide readers with a more comprehensive understanding of management's perspective on the REIT's operating results and performance.

The following discussion describes the non-GAAP ratios the REIT uses in evaluating its operating results.

Proportionate NOI Margin 
Proportionate NOI margin is calculated as Proportionate NOI divided by revenue (on a Proportionate Basis) and is an important measure in evaluating the operating performance (including the level of operating expenses) of the REIT's real estate properties. Proportionate NOI margin is presented in this earnings release because management considers this non-GAAP ratio to be an important measure of the REIT's operating performance and financial position.

FFO Payout Ratio 
FFO payout ratio compares distributions declared (including Class B LP Units) to FFO. Distributions declared (including Class B LP Units) is calculated based on the monthly distribution per Unit multiplied by the weighted average number of Units outstanding (including Class B LP Units) during the period and is an important metric in assessing the sustainability of retained cash flow to fund capital expenditures and distributions. FFO payout ratio is presented in this earnings release because management considers this non-GAAP ratio to be an important measure of the REIT's operating performance and financial position.

Indebtedness to Gross Book Value Ratio 
Indebtedness to gross book value ratio is a compliance measure in the REIT's Declaration of Trust and establishes the limit for financial leverage of the REIT. Indebtedness to gross book value ratio is presented in this earnings release because management considers this non-GAAP ratio to be an important measure of the REIT's financial position.

Subsequent Events 
On July 1, 2022, the REIT completed the refinancing of a multi-suite residential property located in Palm Beach County, Florida, in the amount of $59.9 million (US$46.5 million) at an interest rate of 4.19% and for a term of 10 years. The maturing mortgage amounts to $30.2 million (US$23.5 million), was open and prepayable at no penalty before its scheduled maturity on October 1, 2022, and had an interest rate of 3.78%.

The REIT entered into a binding agreement to acquire a multi-suite residential property comprising 350 suites located in Chicago, Illinois, for a purchase price of $171.4 million (US$133.0 million), excluding closing costs. The acquisition is expected to close during the third quarter of 2022.

The REIT's condensed consolidated financial statements for the three and six months ended June 30, 2022, along with the Management's Discussion and Analysis will be available on the REIT's website at www.morguard.com and will be filed with SEDAR at www.sedar.com.

Conference Call Details 
Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday, July 28, 2022 at 3:00 p.m. (ET) to discuss the financial results for the three and six months ended June 30, 2022 and 2021. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 39294741.

About Morguard North American Residential REIT 
The REIT is an unincorporated, open-ended real estate investment trust established under and governed by the laws of the Province of Ontario. The Units of the REIT trade on the Toronto Stock Exchange under the ticker symbol MRG.UN. With a strategic focus on the acquisition of high-quality multi-suite residential properties in Canada and the United States, the REIT maximizes long-term Unit value through active asset and property management. The REIT's portfolio is comprised of 12,983 residential suites (as of July 26, 2022) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $3.6 billion at June 30, 2022. For more information, visit the REIT's website at www.morguard.com.

SOURCE Morguard North American Residential REIT

For further information: Morguard North American Residential REIT, K. Rai Sahi, Chief Executive Officer, (905) 281-3800; Christopher A. Newman, Chief Financial Officer, (905) 281-3800


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