MISSISSAUGA, ON, Oct. 27, 2020 /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, 2020, including a brief operational and liquidity update as we continue to focus on our essential service of providing safe homes to our tenants during this COVID-19 pandemic.
Third Quarter Highlights
The REIT is reporting third quarter performance of:
- Net operating income (“NOI”) of $38.8 million for the three months ended September 30, 2020, an increase of $0.8 million, or 2.0% compared to 2019.
- Same Property Proportionate NOI in Canada decreased by $0.4 million (or 2.9%), and in the U.S. increased by US$0.5 million (or 3.8%), compared to 2019.
- Basic funds from operations (“FFO”) of $16.1 million for the three months ended September 30, 2020, was consistent compared to $16.1 million over the same period in 2019.
- Basic FFO of $0.29 per Unit for the three months ended September 30, 2020 as compared to the $0.31 per Unit over the same period in 2019.
- FFO payout ratio for the three months ended September 30, 2020 of 61.1% compared to 55.6% in 2019.
- Net income of $53.5 million for the three months ended September 30, 2020 compared to a net loss of $1.4 million over the same period in 2019. The increase in net income is predominantly due to a higher non-cash fair value gain on real estate properties and a higher fair value gain on Class B LP Units.
The REIT is reporting the following corporate and portfolio highlights:
- As at October 27, 2020, the REIT collected 97.9% of third quarter rental revenue and approximately 95.1% (95.6% in Canada / 94.8% in the U.S.) of October rental revenue which is materially in line with historical collection rates.
- As at September 30, 2020, average monthly rent (“AMR”) in Canada increased by 4.5% compared to September 30, 2019, while occupancy remained stable at 96.4% at September 30, 2020, compared to 99.4% at September 30, 2019. Occupancy in Canada declined slightly due to reduced leasing traffic, as well as two properties impacted by university closures.
- As at September 30, 2020, AMR in the U.S. on a Same Property basis increased by 1.9% compared to September 30, 2019, while occupancy remained stable at 94.1% at September 30, 2020, compared to 94.4% at September 30, 2019.
- As at September 30, 2020, indebtedness to gross book value ratio was 42.8%, compared to 44.1% as at December 31, 2019.
- The REIT substantially completed the redevelopment of its mid-rise property, 1643 Josephine Street, New Orleans, Louisiana. Due to COVID-19 social distancing requirements, virtual preleasing has begun with first occupancies taking place in late-October.
Financial and Operational Highlights
|
As at |
September 30, 2020 |
December 31, 2019 |
September 30, 2019 |
|
(In thousands of dollars, except as noted otherwise) |
|||
|
Operational Information |
|||
|
Number of properties |
43 |
43 |
42 |
|
Total suites |
13,275 |
13,277 |
12,587 |
|
Occupancy percentage â Canada |
96.4% |
98.8% |
99.4% |
|
Occupancy percentage â U.S. |
93.3% |
94.5% |
94.4% |
|
Average monthly rent – Canada (in actual dollars) |
$1,481 |
$1,432 |
$1,417 |
|
Average monthly rent – U.S. (in actual U.S. dollars) |
US$1,427 |
US$1,409 |
US$1,340 |
|
Summary of Financial Information |
|||
|
Gross book value |
$3,177,215 |
$3,033,427 |
$3,070,572 |
|
Indebtedness |
$1,358,370 |
$1,337,229 |
$1,351,136 |
|
Indebtedness to gross book value ratio |
42.8% |
44.1% |
44.0% |
|
Weighted average mortgage interest rate
|
3.45% |
3.48% |
3.49% |
|
Weighted average term to maturity on mortgages payable (years) |
5.1 |
5.6 |
5.1 |
|
Exchange rates – United States dollar to Canadian dollar |
$1.33 |
$1.30 |
$1.32 |
|
Exchange rates – Canadian dollar to United States dollar |
$0.75 |
$0.77 |
$0.76 |
|
Three months ended |
Nine months ended |
|||
|
September 30 |
September 30 |
|||
|
(In thousands of dollars, except per Unit amounts) |
2020 |
2019 |
2020 |
2019 |
|
Summary of Financial Information |
||||
|
Interest coverage ratio |
2.24 |
2.29 |
2.35 |
2.28 |
|
Indebtedness coverage ratio |
1.53 |
1.61 |
1.60 |
1.60 |
|
Revenue from real estate properties |
$62,159 |
$61,135 |
$187,658 |
$184,353 |
|
NOI |
$38,796 |
$38,038 |
$97,341 |
$93,864 |
|
Proportionate NOI |
$33,722 |
$31,673 |
$105,445 |
$95,522 |
|
Same Property Proportionate NOI |
$32,131 |
$31,673 |
$99,067 |
$94,406 |
|
NOI margin – IFRS |
62.4% |
62.2% |
51.9% |
50.9% |
|
NOI margin – Proportionate |
53.2% |
53.6% |
54.9% |
53.7% |
|
Net income (loss) |
$53,472 |
($1,407) |
$169,896 |
$44,231 |
|
FFO – basic |
$16,085 |
$16,148 |
$53,516 |
$47,091 |
|
FFO – diluted |
$17,050 |
$17,113 |
$56,394 |
$49,969 |
|
FFO per Unit – basic |
$0.29 |
$0.31 |
$0.95 |
$0.91 |
|
FFO per Unit – diluted |
$0.28 |
$0.30 |
$0.94 |
$0.89 |
|
Distributions per Unit |
$0.1749 |
$0.1698 |
$0.5247 |
$0.5094 |
|
FFO payout ratio |
61.1% |
55.6% |
55.1% |
55.8% |
|
Weighted average number of Units outstanding (in thousands): |
||||
|
Basic |
56,227 |
52,897 |
56,217 |
51,609 |
|
Diluted |
60,460 |
57,130 |
60,450 |
55,842 |
|
Average exchange rates – United States dollar to Canadian dollar |
$1.33 |
$1.32 |
$1.35 |
$1.33 |
|
Average exchange rates – Canadian dollar to United States dollar |
$0.75 |
$0.76 |
$0.74 |
$0.75 |
Operational and Liquidity Update
Ontario represents the REIT’s largest region in terms of suites and net operating income and in response to Ontario’s eviction moratorium, the REIT is committed to working with residents on a case-by-case basis on rent deferral arrangements discussed in more detail below. In late July 2020, the Ontario government ended its moratorium on residential evictions after it lifted its state of emergency. The Landlord and Tenant Board (“LTB”) will begin working through its backlog of pending eviction orders and will gradually expand services in August, however all in-person service counters remain closed until further notice. Effective August 1, 2020, the LTB will begin to issue eviction orders that are pending, start to issue consent eviction orders which are based on landlord and tenants settling their dispute through an agreement and start to schedule hearings for non-urgent evictions. In addition, in the U.S. regions where the REIT operates, similar measures have been taken in late March and early April to pause evictions and late fees for a period of 120 days, expiring in late July 2020 and on September 4, 2020, the Department of Health and Human Services and the Centers for Disease Control and Prevention issued an order to temporarily halt evictions for eligible tenants until December 31, 2020.
In September 2020, the Government of Ontario passed legislation to freeze rent at 2020 levels. Under Ontario’s rent control legislation, a landlord is entitled to increase the rent for existing tenants once every 12 months by no more than the “guideline amount” based on the Ontario Consumer Price Index (“CPI”). The guideline increase cannot be more than 2.5%, even if the CPI increase is higher. For the calendar year 2021, the guideline amount was established at 0.0% (2.2% for 2020). However, an application for an above guideline increase (“AGI”) approved by the LTB is permitted. Currently, the REIT has AGI’s at seven Ontario properties providing additional rent increases for a twelve month period commencing at various effective dates in 2020, ranging from 0.85% to 2.10% and five other pending applications that will provide AGI’s into 2021. Although the rental market has softened, the REIT still has the ability to increase rents on turnover and through above guideline applications.
The following information as of October 27, 2020 provides an operating update on the REIT’s portfolio and liquidity position:
- As at October 27, 2020, the REIT’s collection of rental revenue during 2020 is summarized below by region:
|
Region |
Q1 |
Q2 |
July |
August |
September |
October |
% Rental Revenue |
||
|
Canada |
99.7% |
99.5% |
99.2% |
98.7% |
98.3% |
95.6% |
37.9% |
||
|
U.S. |
99.9% |
99.2% |
97.9% |
97.3% |
96.6% |
94.8% |
62.1% |
||
|
Total |
99.8% |
99.3% |
98.4% |
97.9% |
97.3% |
95.1% |
100.0% |
Management will monitor rent collections and compassionately follow up with those accounts in arrears as the impact of the pandemic continues to weigh on the North American economy over the remainder of the year.
- The REIT implemented a rent deferral program for our residential tenants who are financially constrained due to the impact of the COVID-19. The REIT is actively working with residents on a case-by-case basis on rent deferral arrangements and will also ensure pertinent and timely information regarding Government financial support programs is shared with tenants. As at October 27, 2020, approximately 0.9% of residential tenants have deferred payment plans. In addition, commencing with April’s rental payment, the REIT waived the collection of rental increases and late fees for existing tenants up to and including August’s rental payment.
- As at October 27, 2020, the REIT’s occupancy remains stable in Canada and in the U.S. with the exception of a few properties directly impacted by university and local business closures as leasing agents work remotely and utilize online technology to continue leasing activity following the onset of social distancing guidelines. Generally speaking, current conditions including social distancing have reduced leasing traffic. In addition, management will closely monitor any impact the U.S. eviction moratorium may have on traffic and turnover levels in the coming months.
- The REIT has liquidity of $134.0 million, comprised of approximately $34.5 million cash and $99.5 million available under its revolving credit facility with Morguard Corporation. In addition, the REIT has no significant debt maturities until the third quarter of 2021 and the REIT has approximately $45.4 million of unencumbered assets. 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 $53.5 million for the three months ended September 30, 2020, an increase of $54.9 million compared to a net loss of $1.4 million over the same period in 2019. The increase in net income was primarily due to the following:
- An increase in net operating income of $0.8 million;
- A decrease in interest expense of $2.3 million;
- An increase in trust expenses of $0.2 million;
- A decrease in equity income from investments of $4.1 million;
- A decrease in foreign exchange gain of $0.7 million;
- A decrease in other income of $0.9 million;
- An increase in net fair value gain on real estate properties of $31.3 million due to a higher fair value gain recorded during third quarter of 2020 compared to the fair value gain recorded over the same period in 2019;
- An increase in fair value gain on Class B LP Units of $26.2 million mainly due to a fair value gain of $1.6 million recorded during the third quarter of 2020 compared to the fair value loss of $24.6 million recorded over the same period in 2019; and
- A decrease in income taxes (current and deferred) of $0.3 million.
Net Operating Income
Three months ended September 30, 2020
For the three months ended September 30, 2020, NOI from the REIT’s properties increased by $0.8 million (or 2.0%) to $38.8 million, compared to $38.0 million in 2019. The increase in NOI is due to an increase in Same Property NOI of $0.8 million (or 2.0%). The Same Property increase of $0.8 million is due to an increase in the U.S. of US$0.7 million (or 3.8%), partially offset by a decrease in Canada of $0.4 million (or 2.9%) and the change in foreign exchange rate which increased NOI by $0.4 million.
For the three months ended September 30, 2020, Proportionate NOI from the REIT’s properties increased by $2.0 million (or 6.5%) to $33.7 million, compared to $31.7 million in 2019. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $0.5 million (or 1.4%) and an increase from the acquisition of properties of $1.6 million. The Same Property increase of $0.5 million is due to an increase in the U.S. of US$0.5 million (or 3.8%), partially offset by a decrease in Canada of $0.4 million (or 2.9%) and the change in foreign exchange rate which increased Proportionate NOI by $0.3 million.
Nine months ended September 30, 2020
For the nine months ended September 30, 2020, NOI from the REIT’s properties increased by $3.5 million (or 3.7%) to $97.3 million, compared to $93.9 million in 2019. The increase in NOI is due to an increase in Same Property NOI of $3.8 million (or 4.1%) and a net decrease from acquisition and disposition of properties of $0.4 million. The Same Property increase of $3.8 million is due to an increase in Canada of $1.5 million (or 3.9%), an increase in the U.S. of US$0.8 million (or 2.1%) and the change in foreign exchange rate which increased NOI by $1.5 million.
For the nine months ended September 30, 2020, Proportionate NOI from the REIT’s properties increased by $9.9 million (or 10.4%) to $105.4 million, compared to $95.5 million in 2019. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $4.7 million (or 4.9%) and a net increase from acquisition and disposition of properties of $5.3 million. The Same Property increase of $4.7 million is due to an increase in Canada of $1.5 million (or 3.9%), an increase in the U.S. of US$1.6 million (or 3.7%) and the change in foreign exchange rate which increased Proportionate NOI by $1.6 million.
Funds From Operations
Three months ended September 30, 2020
Basic FFO for the three months ended September 30, 2020 of $16.1 million ($0.29 per Unit), was consistent compared to $16.1 million ($0.31 per Unit) in 2019. A decrease in other income of $0.9 million, primarily from lower interest income earned on the Morguard Facility and a non-recurring charge, and an increase in interest expense (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures) and trust expenses was offset by a higher Proportionate NOI of $2.0 million.
Basic FFO per Unit for the three months ended September 30, 2020, decreased by $0.02 to $0.29 per Unit, compared to $0.31 per Unit in 2019 due to the following factors:
|
i) |
the dilutive impact from the issuance of Units on August 28, 2019, offset by interest income earned on proceeds advanced on the Morguard Facility, net of the partial use of proceeds on December 9, 2019, to acquire Marquee at Block 37, had a $0.01 per Unit negative impact; |
|
ii) |
an increase in other expense relating to a non-recurring write-off of unrecoverable insurance premiums from property dispositions, had a $0.01 per Unit negative impact. |
Nine months ended September 30, 2020
Basic FFO for the nine months ended September 30, 2020, increased by $6.4 million, or 13.6%, to $53.5 million ($0.95 per Unit), compared to $47.1 million ($0.91 per Unit) in 2019. The increase is mainly due to higher Proportionate NOI of $9.9 million, partially offset by an increase in interest expense (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures) and trust expenses.
Basic FFO per Unit for the nine months ended September 30, 2020, increased by $0.04 to $0.95 per Unit, compared to $0.91 per Unit in 2019 due to the following factors:
|
i) |
an increase on a Same Property Proportionate Basis predominantly due to an increase in NOI and a decrease in interest expense, partially offset by higher trust expenses, had a $0.06 per Unit positive impact, of which a successful property tax appeal, net of consulting fees amounted to $0.01 per Unit; |
|
ii) |
an increase in other income relating to the Canada Emergency Wage Subsidy (“CEWS”) program had a $0.015 per Unit positive impact, which was partially offset by an increase in other expense relating to a non-recurring write-off of unrecoverable insurance premiums from property dispositions, which had a $0.01 per Unit negative impact; |
|
iii) |
the dilutive impact from the issuance of Units on August 28, 2019, offset by interest income earned on proceeds advanced on the Morguard Facility, net of the partial use of proceeds on December 9, 2019, to acquire Marquee at Block 37, had a $0.035 per Unit negative impact; |
|
iv) |
the change in the foreign exchange rate had a $0.01 per Unit positive impact. |
For the nine months ended September 30, 2020, the disposal of five Louisiana properties during the first half of 2019 had a $nil per Unit impact as the decrease in FFO generated from the properties disposed of was offset by the extinguishment of mortgages payable.
The REIT’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020, 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, 2020 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 29, 2020 at 3:00 p.m. (ET) to discuss the financial results for the nine months ended September 30, 2020 and 2019. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 73118123.
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 October 27, 2020) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $3.1 billion at September 30, 2020. For more information, visit the REIT’s website at www.morguard.com.
SOURCE Morguard North American Residential Real Estate Investment Trust
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