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Morguard North American Residential REIT Announces 2019 Second Quarter Results

Morguard 7/30/2019

Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three and six months ended June 30, 2019.

Highlights

The REIT is reporting second quarter performance of:

  • Net operating income ("NOI") of $39.0 million for the three months ended June 30, 2019, an increase of $0.7 million, or 1.7% compared to 2018.

  • Same Property Proportionate NOI increased by $0.9 million (or 3.0%) to $31.8 million, compared to 2018.

  • Basic funds from operations ("FFO") of $15.7 million for the three months ended June 30, 2019, compared to $15.7 million over the same period in 2018.

  • Basic FFO of $0.31 per Unit for the three months ended June 30, 2019, compared to the $0.31 per Unit over the same period in 2018.

  • FFO payout ratio for the three months ended June 30, 2019 of 55.1% compared to 53.6% in 2018.

  • Net income of $41.9 million for the three months ended June 30, 2019, an increase of $22.2 million, compared to 2018.

The REIT is reporting the following corporate and portfolio highlights:

  • On April 30, 2019, the REIT sold a property located in Harahan, Louisiana, comprising 48 suites, for gross proceeds of $4,428 (US$3,298), including closing costs, and the purchaser assumed the mortgage secured by the property in the amount of $2,852 (US$2,125).

  • On May 22, 2019, the REIT acquired partial interests in three properties controlled by the REIT located in Mississauga, Ontario, for a purchase price of $8,014, including closing costs and the assumption of partial interest of the mortgages secured by the properties.

  • As at June 30, 2019, average monthly rent ("AMR") in Canada increased by 4.0% compared to June 30, 2018, while occupancy remained strong and stable at 98.8% at June 30, 2019, compared to 99.2% at June 30, 2018.

  • As at June 30, 2019, AMR in U.S. on a Same Property basis, increased by 3.0% compared to June 30, 2018, while occupancy improved to 95.2% at June 30, 2019, compared to 94.1% at June 30, 2018.

  • As at June 30, 2019, and December 31, 2018, the REIT's real estate properties were valued at $2.9 billion.

  • As at June 30, 2019, the REIT's indebtedness to gross book value ratio was 46.1%, compared to 47.9% as at December 31, 2018.

Financial and Operational Highlights

As at

June 30,

December 31,

June 30,

(In thousands of dollars, except as noted otherwise)

2019

2018

2018

Operational Information

Number of properties

42

47

47

Total suites

12,587

13,430

13,430

Occupancy percentage – Canada

98.8%

99.1%

99.2%

Occupancy percentage – U.S.

95.2%

94.7%

93.7%

Average monthly rent - Canada (in actual dollars)

$1,399

$1,373

$1,345

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

US$1,319

US$1,236

US$1,221

Summary of Financial Information

Gross book value

$2,952,777

$3,011,469

$2,857,537

Indebtedness

$1,360,870

$1,442,607

$1,413,008

Indebtedness to gross book value ratio

46.1%

47.9%

49.4%

Weighted average mortgage interest rate

3.48%

3.49%

3.48%

Weighted average term to maturity on mortgages payable (years)

5.3

5.8

6.3

Exchange rates - United States dollar to Canadian dollar

$1.31

$1.36

$1.32

Exchange rates - Canadian dollar to United States dollar

$0.76

$0.73

$0.76

 


Three months ended

Six months ended

June 30

June 30

(In thousands of dollars, except per Unit amounts)

2019

2018

2019

2018

Summary of Financial Information

Interest coverage ratio

2.28

2.24

2.27

2.20

Indebtedness coverage ratio

1.60

1.61

1.59

1.58

Revenue from real estate properties

$60,960

$59,973

$123,218

$118,067

NOI

$38,989

$38,323

$55,826

$55,433

Proportionate NOI

$31,929

$31,962

$63,849

$62,147

Same Property Proportionate NOI

$31,808

$30,879

$62,975

$59,934

NOI margin - IFRS

64.0%

63.9%

45.3%

47.0%

NOI margin - Proportionate

54.4%

55.5%

53.8%

54.6%

Net income

$41,912

$19,687

$45,638

$100,093

FFO - basic

$15,697

$15,687

$30,943

$30,436

FFO - diluted

$16,656

$16,646

$32,856

$32,308

FFO per Unit - basic

$0.31

$0.31

$0.61

$0.60

FFO per Unit - diluted

$0.31

$0.30

$0.60

$0.58

Distributions per Unit

$0.17

$0.165

$0.34

$0.33

FFO payout ratio

55.1%

53.6%

55.9%

55.2%

Weighted average number of Units outstanding (in thousands):

Basic

50,958

50,926

50,954

50,922

Diluted

55,191

55,159

55,187

55,324

Average exchange rates - United States dollar to Canadian dollar

$1.34

$1.29

$1.33

$1.28

Average exchange rates - Canadian dollar to United States dollar

$0.75

$0.77

$0.75

$0.78

 

Net Income

Net income of $41.9 million for the three months ended June 30, 2019, increased by $22.2 million compared to $19.7 million in 2018.  The increase in net income was primarily due to the following:

  • An increase in net operating income of $0.7 million;

  • A decrease in interest expense of $0.5 million;

  • An increase in equity income from investment of $1.4 million;

  • An increase in foreign exchange loss of $0.9 million;

  • A decrease in net fair value gain on real estate properties of $3.6 million;

  • An decrease in fair value loss on Class B LP Units of $22.4 million; and

  • A decrease in income taxes (current and deferred) of $1.7 million.

Net Operating Income

Three months ended June 30, 2019
For the three months ended June 30, 2019, NOI from the REIT's properties increased by $0.7 million (or 1.7%) to $39.0 million, compared to $38.3 million in 2018. The increase in NOI is due to an increase in Same Property NOI of $1.8 million (or 4.9%) and a decrease of $1.2 million from the disposition of properties net of the acquisition of partial interests in three properties controlled by the REIT. The Same Property increase of $1.8 million is due to an increase in Canada of $0.2 million (or 1.7%), an increase in the U.S. of US$0.6 million (or 3.0%) and the change in foreign exchange rate which increased NOI by $1.0 million.

For the three months ended June 30, 2019, Proportionate NOI from the REIT's properties decreased by $0.1 million (or 0.1%) to $31.9 million, compared to $32.0 million in 2018. The decrease in Proportionate NOI is due to a decrease of $1.0 million from the disposition of properties net of the acquisition of partial interests in three properties controlled by the REIT and an increase in Same Property Proportionate NOI of $0.9 million (or 3.0%). The Same Property increase of $0.9 million is due to an increase in Canada of $0.2 million (or 1.6%), an increase in the U.S. of US$0.1 million (or 0.4%) and the change in foreign exchange rate which increased Proportionate NOI by $0.6 million.

Six months ended June 30, 2019
For the six months ended June 30, 2019, NOI from the REIT's properties increased by $0.4 million (or 0.7%) to $55.8 million, compared to $55.4 million in 2018. The increase in NOI is due to an increase in Same Property NOI of $2.0 million (or 3.7%) and a decrease of $1.6 million from the disposition of properties net of the acquisition of partial interests in three properties controlled by the REIT. The Same Property increase of $2.0 million is due to an increase in Canada of $0.9 million (or 3.7%), a decrease in the U.S. of US$0.2 million (or 1.1%) and the change in foreign exchange rate which increased NOI by $1.3 million.

For the six months ended June 30, 2019, Proportionate NOI from the REIT's properties increased by $1.7 million (or 2.7%) to $63.8 million, compared to $62.1 million in 2018. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $3.0 million (or 5.1%) and a decrease of $1.3 million from the disposition of properties net of the acquisition of partial interests in three properties controlled by the REIT. The Same Property increase of $3.0 million is due to an increase in Canada of $0.9 million (or 3.7%), an increase in the U.S. of US$0.5 million (or 1.7%) and the change in foreign exchange rate which increased Proportionate NOI by $1.6 million.

Funds From Operations

Three months ended June 30, 2019
Basic FFO for the three months ended June 30, 2019 was $15.7 million ($0.31 per Unit), compared to $15.7 million ($0.31 per Unit) in 2018. An increase in other income of $0.1 million was offset by $0.1 million due to lower Proportionate NOI and increase in interest expense (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures). The increase in interest expense includes lower amortization of mark-to-market adjustments of $0.2 million and a $0.1 million loss on extinguishment of mortgage payable in connection with the disposal of five Louisiana properties.

Basic FFO per Unit for the three months ended June 30, 2019, was $0.31 per Unit, compared to $0.31 per Unit for the three months ended June 30, 2018. The change in the foreign exchange rate had a $0.01 per Unit positive impact and the disposal of the five Louisiana properties had a $0.01 per Unit negative impact.

Six months ended June 30, 2019
Basic FFO for the six months ended June 30, 2019, increased by $0.5 million, or 1.7%, to $30.9 million ($0.61 per Unit), compared to $30.4 million ($0.60 per Unit) in 2018. The increase is mainly due to higher Proportionate NOI of $1.7 million and an increase in other income of $0.1 million, partially offset by an increase in interest expense of $0.9 million (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures) and an increase in trust expenses of $0.3 million. The increase in interest expense of $0.9 million includes lower amortization of mark-to-market adjustments of $0.4 million and a $0.6 million loss on extinguishment of mortgage payable in connection with the disposal of five Louisiana properties.

Basic FFO per Unit for the six months ended June 30, 2019, increased by $0.01 to $0.61 per Unit, compared to $0.60 per Unit for the six months ended June 30, 2018. The change in the foreign exchange rate had a $0.02 per Unit positive impact and the disposal of the five Louisiana properties had a $0.02 per Unit negative impact.

The REIT's unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019, 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 six months ended June 30, 2019 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, August 1, 2019 at 3:00 p.m. (ET) to discuss the financial results for the six months ended June 30, 2019 and 2018. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID # 98673063.

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 consists of 12,587 residential suites (as of July 30, 2019) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $2.9 billion at June 30, 2019. For more information, visit the REIT's website at www.morguard.com.

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

Morguard North American Residential REIT; Real Estate Investment