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Morguard North American Residential REIT Announces 2022 First Quarter Results - Apr 26, 2022

Morguard North American Residential REIT Announces 2022 First Quarter Results

Apr 26, 2022

MISSISSAUGA, ON, April 26, 2022 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2022.

Highlights

The REIT is reporting performance of:

  • Net operating income ("NOI") of $17.4 million for the three months ended March 31, 2022, an increase of $2.2 million, or 14.8% compared to 2021. The change in foreign exchange rate increased NOI by $0.6 million.

     
  • Same Property Proportionate NOI in the U.S. increased by 16.0%, and in Canada decreased by 3.3%, compared to 2021.

     
  • Net income of $171.1 million for the three months ended March 31, 2022, an increase of $143.7 million, compared to 2021. The increase in net income is predominantly due to a higher non-cash fair value gain on real estate properties, partially offset by an increase in fair value loss on Class B LP Units and deferred income tax.

     
  • Basic funds from operations ("FFO") of $18.3 million for the three months ended March 31, 2022, an increase of $2.7 million, or 17.2% over the same period in 2021.

     
  • Basic FFO of $0.33 per Unit for the three months ended March 31, 2022, a 17.9% increase as compared to the $0.28 in 2021.

     
  • FFO payout ratio for the three months ended March 31, 2022 of 53.8% compared to 63.0% in 2021.

The REIT is reporting the following corporate and portfolio highlights:

  • Subsequent to March 31, 2022, the REIT entered into conditional agreements to sell two properties located in Atlanta, Georgia and Slidell, Louisiana, providing net proceeds of $88.1 million (US$70.5 million), excluding closing costs and after the repayment of mortgages payable secured by the properties.

     
  • As at March 31, 2022, average monthly rent ("AMR") in the U.S., on a Same Property basis, increased by 9.6% compared to March 31, 2021, while occupancy continued the positive momentum achieved last year and reached 96.2% at March 31, 2022, compared to 95.1% at March 31, 2021.

     
  • As at March 31, 2022, AMR in Canada increased by 3.1% compared to March 31, 2021, while occupancy increased to 93.8% at March 31, 2022, compared to 93.6% at March 31, 2021.

     
  • As at March 31, 2022, indebtedness to gross book value ratio of 37.3%, lower compared to 40.2% as at December 31, 2021.

     
  • As at March 31, 2022, the REIT's total assets were valued at $3.7 billion compared to $3.5 billion as at December 31, 2021.

Financial and Operational Highlights

As at

March 31,

 

December 31,

 

March 31,

(In thousands of dollars, except as otherwise noted)

2022

 

2021

 

2021

Operational Information

         

Number of properties

43

 

43

 

43

Total suites

13,275

 

13,275

 

13,275

           

Occupancy percentage – Canada

93.8%

 

93.6%

 

93.6%

Occupancy percentage – U.S.

96.3%

 

96.3%

 

93.7%

Average monthly rent - Canada (in actual dollars)

$

1,556

 

$

1,535

 

$

1,509

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

US$1,571 

 

                US$1,525

 

US$1,429

           

Summary of Financial Information

         

Gross book value(1)

$

3,691,992

 

$

3,473,287

 

$

3,090,429

Indebtedness(1)

$

1,376,107

 

$

1,395,438

 

$

1,302,145

           

Indebtedness to gross book value ratio(1)

37.3%

 

40.2%

 

42.1%

Weighted average mortgage interest rate

3.31%

 

3.31%

 

3.45%

Weighted average term to maturity on mortgages payable (years)

4.7

 

5.0

 

4.6

Exchange rates - United States dollar to Canadian dollar

$

1.25

 

$

1.27

 

$

1.26

Exchange rates - Canadian dollar to United States dollar

$

0.80

 

$

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.

 

For the three months ended March 31

 

(In thousands of dollars, except per Unit amounts)

2022

2021

Summary of Financial Information

   

Revenue from real estate properties

$

65,257

$

60,322

NOI

$

17,424

$

15,184

Proportionate NOI(1)

$

35,127

$

31,818

Same Property Proportionate NOI(1)

$

34,669

$

32,009

NOI margin - IFRS

26.7%

25.2%

NOI margin – Proportionate(1)

52.8%

52.2%

Net income

$

171,142

$

27,395

     

FFO – basic(1)

$

18,307

$

15,619

FFO – diluted(1)

$

19,250

$

16,562

FFO per Unit – basic(1)

$

0.33

$

0.28

FFO per Unit – diluted(1)

$

0.32

$

0.27

Distributions per Unit

$

0.1749

$

0.1749

FFO payout ratio(1)

53.8%

63.0%

Weighted average number of Units outstanding (in thousands):

   

Basic

56,293

56,248

Diluted

60,526

60,481

Average exchange rates - United States dollar to Canadian dollar

$

1.27

$

1.27

Average exchange rates - Canadian dollar to United States dollar

$

0.79

$

0.79

   

(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 months ended March 31, 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 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:

         

2022

         

2021

   

Non-GAAP Adjustments

     

Non-GAAP Adjustments

 

For the three months ended

       

Proportionate

         

Proportionate

  March 31

 

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

$

64,465

($3,455)

$

4,705

$

$

65,715

 

$

60,227

($3,230)

$

3,901

$

$

60,898

Acquisition/Development

792

792

 

95

95

Total revenue from properties

65,257

(3,455)

4,705

66,507

 

60,322

(3,230)

3,901

60,993

Property operating expenses

                     

Same Property

47,389

(3,565)

5,400

(18,178)

31,046

 

44,734

(3,452)

5,209

(17,602)

28,889

Acquisition/Development

444

(110)

334

 

404

(118)

286

Total property operating expenses

47,833

(3,565)

5,400

(18,288)

31,380

 

45,138

(3,452)

5,209

(17,720)

29,175

NOI

                     

Same Property

17,076

110

(695)

18,178

34,669

 

15,493

222

(1,308)

17,602

32,009

Acquisition/Development

348

110

458

 

(309)

118

(191)

Total NOI

$

17,424

$

110

($695)

$

18,288

$

35,127

 

$

15,184

$

222

($1,308)

$

17,720

$

31,818

NOI Margin

26.7%

     

52.8%

 

25.2%

     

52.2%

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:

 For the three months ended March 31

 

(In thousands of dollars, except per Unit amounts)

2022

2021

Net income for the period attributable to Unitholders

$

162,430

$

27,009

Add/(deduct):

   

Realty taxes accounted for under IFRIC 21

18,288

17,720

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

2,150

(423)

Distributions on Class B LP Units recorded as interest expense

3,012

3,012

Foreign exchange loss

15

23

Fair value gain on real estate properties, net

(250,477)

(30,113)

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

9,750

1,544

Fair value loss (gain) on Class B LP Units

32,724

(6,544)

Deferred income tax expense

40,415

3,391

FFO – basic

$

18,307

$

15,619

Interest expense on the convertible debentures

943

943

FFO – diluted

$

19,250

$

16,562

FFO per Unit – basic

$

0.33

$

0.28

FFO per Unit – diluted

$

0.32

$

0.27

     

Weighted average number of Units outstanding (in thousands):

   

Basic

56,293

56,248

Diluted

60,526

60,481

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

March 31,

December 31,

(In thousands of dollars)

2022

2021

Total Assets / Gross book value

$

3,691,992

$

3,473,287

Mortgage payable

$

1,270,081

$

1,288,555

Add: deferred financing costs

11,591

12,318

 

1,281,672

1,300,873

Convertible debentures, face value

85,500

85,500

Lease liability

8,935

9,065

Indebtedness

$

1,376,107

$

1,395,438

Indebtedness / Gross book value

37.3%

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

Subsequent to March 31, 2022, the REIT entered into a binding commitment letter for the refinancing of a multi-suite residential property located in West Palm Beach, Florida, in the amount of $19.1 million (US$15.3 million) at an interest rate of 3.89% and for a term of 10 years. The REIT expects to close the refinancing during the second quarter of 2022. The maturing mortgage amounts to $11.3 million (US$9.1 million), is open and prepayable at no penalty before its scheduled maturity on August 1, 2022, and has an interest rate of 3.96%.

Subsequent to March 31, 2022, the REIT entered into a binding commitment letter for the refinancing of a multi-suite residential property located in Palm Beach County, Florida, in the amount of $57.1 million (US$45.7 million) at an interest rate of 4.19% and for a term of 10 years. The REIT expects to close the refinancing during the second quarter of 2022. The maturing mortgage amounts to $29.1 million (US$23.3 million), is open and prepayable at no penalty before its scheduled maturity on October 1, 2022, and has an interest rate of 3.78%.

The REIT's condensed consolidated financial statements for the three months ended March 31, 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, April 28, 2022 at 3:00 p.m. (ET) to discuss the financial results for the three months ended March 31, 2022 and 2021. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 56137329.

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 13,275 residential suites (as of April 26, 2022) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $3.5 billion at March 31, 2022. 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


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