Morguard North American Residential REIT Announces 2021 Third Quarter Results
Oct 26, 2021
MISSISSAUGA, ON, Oct. 26, 2021 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three and nine months ended September 30, 2021.
Third Quarter Highlights
The REIT is reporting third quarter performance of:
- Net operating income ("NOI") of $37.1 million for the three months ended September 30, 2021, a decrease of $1.7 million (or 4.3%) compared to 2020, and Proportionate NOI $32.6 million for the three months ended September 30, 2021 a decrease of $1.1 million (or 3.2%) compared to 2020. The change in foreign exchange rate decreased NOI and Proportionate NOI by $1.4 million and $1.1 million, respectively.
- Same Property Proportionate NOI in Canada decreased by $0.3 million (or 2.4%), and in the U.S. increased by US$0.1 million (or 0.7%), compared to 2020.
- Basic funds from operations ("FFO") of $16.2 million for the three months ended September 30, 2021 compared to $16.1 million over the same period in 2020.
- Basic FFO of $0.29 per Unit for the three months ended September 30, 2021, compared to $0.29 per Unit over the same period in 2020.
- FFO payout ratio for the three months ended September 30, 2021 of 60.9% compared to 61.1% in 2020.
- Net income of $86.7 million for the three months ended September 30, 2021, compared to $53.5 million over the same period in 2020.
The REIT is reporting the following corporate and portfolio highlights:
- The REIT's redevelopment property, 1643 Josephine Street, New Orleans, Louisiana, reached stabilized occupancy and is currently 90.4% occupied and 98.2% leased. The repositioned asset further improves the overall quality of the portfolio having an average monthly rent ("AMR") of $1,822.
- As at October 26, 2021, the REIT's collection of rental revenue in Canada and in the U.S. continues to be strong, exceeding 99% on average throughout the first three quarters of 2021.
- As at September 30, 2021, AMR in Canada increased by 3.3% compared to September 30, 2020, while occupancy decreased to 92.7% at September 30, 2021, compared to 96.4% at September 30, 2020.
- As at September 30, 2021, AMR in the U.S. on a Same Property basis increased by 4.1% compared to September 30, 2020, while occupancy maintained optimum levels at 96.4% at September 30, 2021, compared to 93.3% at September 30, 2020.
- As at September 30, 2021, indebtedness to gross book value ratio was 40.2%, compared to 42.8% as at December 31, 2020.
Financial and Operational Highlights
|
As at |
September 30, |
December 31, |
September 30, |
|
(In thousands of dollars, except as noted otherwise) |
2021 |
2020 |
2020 |
|
Operational Information |
|||
|
Number of properties |
43 |
43 |
43 |
|
Total suites |
13,275 |
13,275 |
13,275 |
|
Occupancy percentage – Canada |
92.7% |
94.9% |
96.4% |
|
Occupancy percentage – U.S. |
96.1% |
92.2% |
93.3% |
|
Average monthly rent - Canada (in actual dollars) |
$1,530 |
$1,500 |
$1,481 |
|
Average monthly rent - U.S. (in actual U.S. dollars) |
US$1,490 |
US$1,428 |
US$1,427 |
|
Summary of Financial Information |
|||
|
Gross book value |
$3,262,415 |
$3,084,358 |
$3,177,215 |
|
Indebtedness |
$1,311,062 |
$1,320,708 |
$1,358,370 |
|
Indebtedness to gross book value ratio |
40.2% |
42.8% |
42.8% |
|
Weighted average mortgage interest rate
|
3.45% |
3.45% |
3.45% |
|
Weighted average term to maturity on mortgages payable (years) |
4.1 |
4.8 |
5.1 |
|
Exchange rates - United States dollar to Canadian dollar |
$1.27 |
$1.27 |
$1.33 |
|
Exchange rates - Canadian dollar to United States dollar |
$0.78 |
$0.79 |
$0.75 |
|
Three months ended |
Nine months ended |
|||
|
September 30 |
September 30 |
|||
|
(In thousands of dollars, except per Unit amounts) |
2021 |
2020 |
2021 |
2020 |
|
Summary of Financial Information |
||||
|
Interest coverage ratio |
2.32 |
2.24 |
2.32 |
2.35 |
|
Indebtedness coverage ratio |
1.49 |
1.53 |
1.52 |
1.60 |
|
Revenue from real estate properties |
$61,955 |
$62,159 |
$182,091 |
$187,658 |
|
NOI |
$37,142 |
$38,796 |
$89,699 |
$97,341 |
|
Proportionate NOI |
$32,641 |
$33,722 |
$96,858 |
$105,445 |
|
Same Property Proportionate NOI |
$32,433 |
$33,722 |
$96,860 |
$105,445 |
|
NOI margin - IFRS |
59.9% |
62.4% |
49.3% |
51.9% |
|
NOI margin - Proportionate |
51.7% |
53.2% |
52.4% |
54.9% |
|
Net income |
$86,654 |
$53,472 |
$134,318 |
$169,896 |
|
FFO - basic |
$16,153 |
$16,085 |
$47,900 |
$53,516 |
|
FFO - diluted |
$17,129 |
$17,050 |
$50,778 |
$56,394 |
|
FFO per Unit - basic |
$0.29 |
$0.29 |
$0.85 |
$0.95 |
|
FFO per Unit - diluted |
$0.28 |
$0.28 |
$0.84 |
$0.94 |
|
Distributions per Unit |
$0.1749 |
$0.1749 |
$0.5247 |
$0.5247 |
|
FFO payout ratio |
60.9% |
61.1% |
61.6% |
55.1% |
|
Weighted average number of Units outstanding (in thousands): |
||||
|
Basic |
56,271 |
56,227 |
56,260 |
56,217 |
|
Diluted |
60,504 |
60,460 |
60,493 |
60,450 |
|
Average exchange rates - United States dollar to Canadian dollar |
$1.26 |
$1.33 |
$1.25 |
$1.35 |
|
Average exchange rates - Canadian dollar to United States dollar |
$0.79 |
$0.75 |
$0.80 |
$0.74 |
Operational and Liquidity Update
The following information as of October 26, 2021 provides an operating update on the REIT's portfolio and liquidity position:
- As at October 26, 2021, the REIT collected 98.4% of the third quarter rental revenue and approximately 95.1% (94.6% in Canada / 95.4% in the U.S.) of October 2021 rental revenue which is materially in line with historical collection rates.
- As at October 26, 2021, the REIT's occupancy in Canada and in the U.S. with the exception of certain properties in Canada directly impacted by university and local business closures remains stable. Specifically, occupancy in the Greater Toronto Area ("GTA") has declined by approximately 400-500 basis points due to the above noted reasons as well as management's focus on maintaining existing rent levels at most properties within the GTA submarket. Further, management believes the higher vacancy experienced in the GTA is temporary and as the economy re-opens, the REIT's GTA suites which comprise larger square foot floor plans at attractive rental rates will continue to appeal to prospective tenants at or above existing market rental rates.
- The REIT has liquidity of $105.0 million, comprised of approximately $20.5 million in cash and $84.5 million available under its revolving credit facility with Morguard Corporation and has approximately $47.5 million of unencumbered assets. In addition, the REIT expects to close the CMHC-insured financing of four properties providing additional net mortgage proceeds of approximately $115.0 million. The REIT has also narrowed down the scope of its capital expenditure program to ensure the availability of resources, allocating an amount that enables the REIT to maintain the structural and overall safety of the properties.
Net Income
The REIT reported a net income of $86.7 million for the three months ended September 30, 2021, an increase of $33.2 million compared to net income of $53.5 million over the same period in 2020. The increase in net income was primarily due to the following:
- A decrease in net operating income of $1.7 million;
- A decrease in interest expense of $0.5 million;
- An increase in equity income from investments of $4.4 million;
- An increase in foreign exchange gain of $0.5 million;
- A decrease in other expense of $0.4 million;
- An increase in net fair value gain on real estate properties of $55.2 million;
- An increase in fair value loss on Class B LP Units of $6.5 million; and
- An increase in income taxes (current and deferred) of $19.6 million.
Net Operating Income
Three months ended September 30, 2021
For the three months ended September 30, 2021, NOI from the REIT's properties decreased by $1.7 million (or 4.3%) to $37.1 million, compared to $38.8 million in 2020, of which a change in the foreign exchange rate decreased NOI by $1.4 million. The decrease in NOI is due to a decrease in Same Property NOI of $1.9 million (or 4.9%), partially offset by an increase in NOI from the REIT's redevelopment property in Louisiana currently under initial lease-up of $0.2 million. The Same Property decrease of $1.9 million is due to a decrease in Canada of $0.3 million (or 2.4%), a decrease in the U.S. of US$0.2 million (or 0.9%) and the change in foreign exchange rate which decreased NOI by $1.4 million.
For the three months ended September 30, 2021, Proportionate NOI from the REIT's properties decreased by $1.1 million (or 3.2%) to $32.6 million, compared to $33.7 million in 2020, of which a change in the foreign exchange rate decreased NOI by $1.1 million. The decrease in Proportionate NOI is due to a decrease in Same Property Proportionate NOI of $1.3 million (or 3.8%), partially offset by an increase in NOI from the REIT's redevelopment property in Louisiana currently under initial lease-up of $0.2 million. The Same Property decrease of $1.3 million is due to a decrease in Canada of $0.3 million (or 2.4%), partially offset by an increase in the U.S. of US$0.1 million (or 0.7%) and the change in foreign exchange rate which decreased Proportionate NOI by $1.1 million.
Nine months ended September 30, 2021
For the nine months ended September 30, 2021, NOI from the REIT's properties decreased by $7.6 million (or 7.9%) to $89.7 million, compared to $97.3 million in 2020, of which a change in the foreign exchange rate decreased NOI by $4.7 million. The decrease in NOI is predominantly due to a decrease in Same Property NOI of $7.6 million (or 7.8%) due to a decrease in Canada of $2.6 million (or 6.3%), a decrease in the U.S. of US$0.3 million (or 0.6%) and the change in foreign exchange rate which decreased NOI by $4.7 million.
For the nine months ended September 30, 2021, Proportionate NOI from the REIT's properties decreased by $8.6 million (or 8.1%) to $96.9 million, compared to $105.4 million in 2020, of which a change in the foreign exchange rate decreased NOI by $5.1 million. The decrease in Proportionate NOI is predominantly due to a decrease in Same Property Proportionate NOI of $8.6 million (or 8.1%) due to a decrease in Canada of $2.6 million (or 6.3%), a decrease in the U.S. of US$0.9 million (or 1.8%) and the change in foreign exchange rate which decreased Proportionate NOI by $5.1 million.
Funds From Operations
Three months ended September 30, 2021
Basic FFO for the three months ended September 30, 2021, increased by $0.1 million (or 0.4%) to $16.2 million ($0.29 per Unit), compared to $16.1 million ($0.29 per Unit) in 2020. The increase is mainly due to a decrease in interest expense (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures) and a decrease in other expense, primarily due to a non-recurring write-off during 2020, partially offset by lower Proportionate NOI of $1.1 million.
Basic FFO per Unit for the three months ended September 30, 2021, was $0.29 per Unit, consistent compared to $0.29 per Unit in 2020 due to the following factors:
|
i) |
On a Same Property Proportionate Basis, in local currency, a slight decrease in NOI offset a decrease in interest expense resulting in a $nil per Unit impact, and a change in the foreign exchange rate had a $0.01 per Unit negative impact; and |
|
ii) |
a decrease in other expense was largely a result of a non-recurring write-off during 2020 had a $0.01 per Unit positive impact. |
Nine months ended September 30, 2021
Basic FFO for the nine months ended September 30, 2021, decreased by $5.6 million (or 10.5%) to $47.9 million ($0.85 per Unit), compared to $53.5 million ($0.95 per Unit) in 2020. The decrease is mainly due to lower Proportionate NOI of $8.6 million and a decrease in other income of $0.8 million, primarily from a wage subsidy received during 2020, net of an increase in interest expense on the Morguard Facility and the non-recurring write-off during 2020 noted above, were partially offset by a decrease in trust expenses and interest expense (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures). Basic FFO for the nine months ended September 30, 2020, includes $0.5 million from a successful property tax appeal, net of consulting fees.
Basic FFO per Unit for the nine months ended September 30, 2021, decreased by $0.10 to $0.85 per Unit, compared to $0.95 per Unit in 2020 due to the following factors:
|
i) |
On a Same Property Proportionate Basis, in local currency, a decrease in NOI from increased vacancy, partly offset by a decrease in interest expense and trust expenses had a $0.035 per Unit negative impact, of which a successful property tax appeal in 2020 impacted FFO per Unit by $0.01, and a change in the foreign exchange rate had a $0.06 per Unit negative impact; and |
|
ii) |
a decrease in other income due to a wage subsidy received during 2020, partially offset by a non-recurring write-off during 2020 had a $0.005 per Unit negative impact. |
The REIT's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021, 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.
Non-IFRS Measures
The REIT's condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). The following measures, NOI, Proportionate NOI, Same Property NOI, Same Property Proportionate NOI, FFO, indebtedness, gross book value, indebtedness to gross book value ratio, interest coverage ratio, indebtedness coverage ratio and Proportionate Basis (collectively, the "non-IFRS measures") as well as other measures discussed elsewhere in this press release, do not have a standardized definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. The REIT uses these measures to better assess the REIT's underlying performance and financial position and provides these additional measures so that investors may do the same. Details on non-IFRS measures are set out in the REIT's Management's Discussion and Analysis for the three and nine months ended September 30, 2021 and available on the REIT's profile on SEDAR at www.sedar.com.
Conference Call Details
Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday,
October 28, 2021 at 3:00 p.m. (ET) to discuss the financial results for the nine months ended September 30, 2021 and 2020. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 78390176.
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. Its portfolio consists of 13,275 residential suites (as of October 26, 2021) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $3.2 billion at September 30, 2021. For more information, visit the REIT's website at www.morguard.com.
SOURCE Morguard North American Residential Real Estate Investment Trust
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