Morguard North American Residential REIT Announces 2024 Second Quarter Results

Jul 30, 2024

MISSISSAUGA, ON, July 30, 2024 /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, 2024.

Highlights

The REIT is reporting second quarter performance of:

  • Net operating income ("NOI") of $54.6 million for the three months ended June 30, 2024, an increase of $1.2 million, or 2.2% compared to 2023. The change in foreign exchange rate increased NOI by $0.5 million.
  • Same Property Proportionate NOI in Canada increased by $1.2 million (or 7.5%), and in the U.S. decreased by US$0.4 million (or 1.8%), compared to 2023.
  • Net income of $50.6 million for the three months ended June 30, 2024, a decrease of $36.9 million, or 42.2% compared to 2023, predominantly due to lower net fair value gain, partially offset by a decrease in deferred income tax.
  • Basic funds from operations ("FFO") of $22.7 million for the three months ended June 30, 2024, a decrease of $1.0 million, or 4.3% over the same period in 2023.
  • Basic FFO of $0.41 per Unit for the three months ended June 30, 2024, a 2.4% decrease as compared to $0.42 per Unit in 2023.
  • FFO payout ratio for the three months ended June 30, 2024 of 44.6% compared to 42.5% in 2023.

The REIT is reporting the following corporate and portfolio highlights:

  • During the second quarter of 2024, the REIT completed the financing of three Canadian multi-suite residential properties for aggregate proceeds of $209.6 million at a weighted average interest rate of 4.64% and for terms of 10.5 years. The maturing mortgages amounted to $91.4 million, had a weighted average interest rate of 3.36%, resulting in net proceeds of $118.2 million, before financing costs.
  • As at June 30, 2024, average monthly rent ("AMR") in Canada increased by 6.1% compared to June 30, 2023, while occupancy remained strong and stable at 98.0% at June 30, 2024, compared to 98.4% at June 30, 2023.
  • As at June 30, 2024, AMR in the U.S., increased by 2.6% compared to June 30, 2023, while occupancy was 93.3% at June 30, 2024, compared to 95.3% at June 30, 2023.
  • As at June 30, 2024, indebtedness to gross book value ratio of 39.3%, compared to 38.7% as at December 31, 2023.

Financial and Operational Highlights

As at

June 30,

December 31,

June 30,

(In thousands of dollars, except as otherwise noted)

2024

2023

2023

Operational Information




Number of properties

43

42

43

Total suites

13,089

13,089

13,089





Occupancy percentage – Canada

98.0 %

98.7 %

98.4 %

Occupancy percentage – U.S.

93.3 %

94.2 %

95.3 %

Average monthly rent - Canada (in actual dollars)

$1,730

$1,674

$1,613

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

                US$1,896

                US$1,875

US$1,848





Summary of Financial Information




Gross book value(1)

$4,377,500

$4,095,931

$4,128,900

Indebtedness(1)

$1,720,043

$1,583,311

$1,583,989





Indebtedness to gross book value ratio(1)

39.3 %

38.7 %

38.4 %

Weighted average mortgage interest rate

3.87 %

3.72 %

3.65 %

Weighted average term to maturity on mortgages payable (years)

5.4

4.9

5.2

(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)

2024

2023

2024

2023

Summary of Financial Information





Revenue from real estate properties

$85,756

$83,326

$170,512

$162,974

NOI

$54,649

$53,494

$75,236

$72,802

Proportionate NOI(1)

$46,401

$45,238

$91,304

$86,902

Same Property Proportionate NOI(1)

$46,401

$45,238

$89,109

$85,793

NOI margin – IFRS

63.7 %

64.2 %

44.1 %

44.7 %

NOI margin – Proportionate(1)

54.4 %

54.6 %

53.8 %

53.6 %

Net income

$50,571

$87,515

$75,347

$121,764






FFO – basic(1)

$22,685

$23,711

$45,219

$45,665

FFO – diluted(1)

$23,525

$24,549

$46,899

$47,571

FFO per Unit – basic(1)

$0.41

$0.42

$0.82

$0.81

FFO per Unit – diluted(1)

$0.41

$0.42

$0.82

$0.80

Distributions per Unit

$0.18501

$0.1800

$0.37002

$0.3600

FFO payout ratio(1)

44.6 %

42.5 %

44.9 %

44.2 %

Weighted average number of Units outstanding (in thousands):





Basic

54,745

55,957

54,856

56,118

Diluted

57,064

58,276

57,175

59,485

(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, 2024 and available on the REIT's profile on SEDAR+ at www.sedarplus.ca.

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






2024





2023



Non-GAAP Adjustments



Non-GAAP Adjustment


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

$85,756

($4,468)

$4,011

$—

$85,299

$83,326

($4,334)

$3,853

$—

$82,845

Property operating expenses

31,107

(1,400)

989

8,202

38,898

29,832

(1,275)

1,027

8,023

37,607

NOI

$54,649

($3,068)

$3,022

($8,202)

$46,401

$53,494

($3,059)

$2,826

($8,023)

$45,238

NOI Margin

63.7 %




54.4 %

64.2 %




54.6 %



















2024





2023



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

$165,669

($8,824)

$7,939

$—

$164,784

$160,528

($8,514)

$7,625

$—

$159,639

Acquisition

4,843

4,843

2,446

2,446

Total revenue from properties

170,512

(8,824)

7,939

169,627

162,974

(8,514)

7,625

162,085

Property operating expenses











Same Property

91,798

(5,632)

4,711

(15,202)

75,675

89,305

(5,215)

5,055

(15,299)

73,846

Acquisition

3,478

(830)

2,648

867

470

1,337

Total property operating expenses

95,276

(5,632)

4,711

(16,032)

78,323

90,172

(5,215)

5,055

(14,829)

75,183

NOI











Same Property

73,871

(3,192)

3,228

15,202

89,109

71,223

(3,299)

2,570

15,299

85,793

Acquisition

1,365

830

2,195

1,579

(470)

1,109

Total NOI

$75,236

($3,192)

$3,228

$16,032

$91,304

$72,802

($3,299)

$2,570

$14,829

$86,902

NOI Margin

44.1 %




53.8 %

44.7 %




53.6 %















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)

2024

2023

2024

2023

Net income for the period attributable to Unitholders

$48,316

$81,227

$74,047

$110,722

Add/(deduct):





Realty taxes accounted for under IFRIC 21

(8,202)

(8,023)

16,032

14,829

Fair value gain on conversion option on the convertible debentures

(975)

(249)

(1,127)

(538)

Distributions on Class B LP Units recorded as interest expense

3,186

3,100

6,372

6,200

Foreign exchange loss

4

23

6

24

Fair value gain on real estate properties, net

(18,998)

(62,171)

(73,718)

(132,857)

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

416

4,368

518

9,990

Fair value loss (gain) on Class B LP Units

(8,095)

(9,473)

12,228

11,195

Deferred income tax expense

7,033

14,909

10,861

26,100

FFO - basic

$22,685

$23,711

$45,219

$45,665

Interest expense on the convertible debentures

840

838

1,680

1,906

FFO - diluted

$23,525

$24,549

$46,899

$47,571

FFO per Unit - basic

$0.41

$0.42

$0.82

$0.81

FFO per Unit - diluted

$0.41

$0.42

$0.82

$0.80






Weighted average number of Units outstanding (in thousands):





Basic

54,745

55,957

54,856

56,118

Diluted

57,064

58,276

57,175

59,485

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)

2024

2023

Total Assets / Gross book value

$4,377,500

$4,095,931

Mortgage payable

$1,627,631

$1,495,362

Add: Deferred financing costs

17,829

13,628

         Mark-to-market adjustment

1,982

2,262


1,647,442

1,511,252

Convertible debentures, face value

56,000

56,000

Lease liabilities

16,601

16,059

Indebtedness

$1,720,043

$1,583,311

Indebtedness / Gross book value

39.3 %

38.7 %

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.

The REIT's condensed consolidated financial statements for the three and six months ended June 30, 2024, 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.sedarplus.ca

Conference Call Details

Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday,

August 1, 2024 at 3:00 p.m. (ET) to discuss the financial results for the three and six months ended June 30, 2024 and 2023. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 67540525.

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 13,089 residential suites and 239,500 square feet of commercial area (as of July 30, 2024) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $4.1 billion at June 30, 2024. For more information, visit the REIT's website at www.morguard.com

SOURCE Morguard North American Residential Real Estate Investment Trust

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