MISSISSAUGA, ON, April 28, 2020 /CNW/ – Morguard North American Residential REIT (the “REIT”) (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 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.
First Quarter Highlights
The REIT is reporting first quarter performance of:
- Net operating income (“NOI”) of $17.3 million for the three months ended March 31, 2020, an increase of $0.5 million, or 2.7% compared to 2019.
- Same Property Proportionate NOI in Canada increased by $1.1 million (or 8.7%), and in the U.S. increased by US$0.4 million (or 2.7%) compared to 2019.
- Basic funds from operations (“FFO”) of $18.1 million for the three months ended March 31, 2020, an increase of $2.9 million, or 18.8% over the same period in 2019.
- Basic FFO of $0.32 per Unit for the three months ended March 31, 2020, a 6.7% increase as compared to $0.30 in 2019.
- FFO payout ratio for the three months ended March 31, 2020 of 54.3% compared to 56.7% in 2019.
- Net income of $97.2 million for the three months ended March 31, 2020, an increase of $93.5 million compared to 2019. The increase in net income is predominantly due to higher non-cash fair value gain on Class B LP Units, partially offset by lower fair value gain on real estate properties.
The REIT is reporting the following corporate and portfolio highlights:
- The REIT recognizes the impact of the novel strain of coronavirus (“COVID-19”) has on many of its tenants in North America and its stakeholders, and is committed in taking measures to protect the health of its employees, tenants and communities.
- As at April 28, 2020, the REIT collected approximately 94.8% (95.0% in Canada / 94.7% in the U.S.) of April rental revenue which is materially in line with historical collection rates.
- As at March 31, 2020, average monthly rent (“AMR”) in Canada increased by 4.6% compared to March 31, 2019, occupancy remained strong at 98.8% at March 31, 2020, compared to 99.3% at March 31, 2019.
- As at March 31, 2020, AMR in U.S. on a Same Property basis, increased by 3.4% compared to March 31, 2019, while occupancy improved to 95.8% at March 31, 2020, compared to 95.3% at March 31, 2019.
- As at March 31, 2020, indebtedness to gross book value ratio of 44.0%, lower compared to 44.1% as at December 31, 2019.
- As at April 28, 2020, the REIT’s occupancy remains stable in Canada and the U.S. as leasing agents work remotely and utilize the use of online technology to continue leasing activity following the onset of the pandemic and social distancing guidelines.
Financial and Operational Highlights
|
As at (In thousands of dollars, except as noted otherwise) |
March 31, |
December 31, |
March 31, |
|
Operational Information |
|||
|
Number of properties |
43 |
43 |
43 |
|
Total suites |
13,277 |
13,277 |
12,635 |
|
Occupancy percentage â Canada |
98.8% |
98.8% |
99.3% |
|
Occupancy percentage â U.S. |
95.4% |
94.5% |
95.3% |
|
Average monthly rent – Canada (in actual dollars) |
$1,447 |
$1,432 |
$1,383 |
|
Average monthly rent – U.S. (in actual U.S. dollars) |
US$1,419 |
US$1,409 |
US$1,306 |
|
Summary of Financial Information |
|||
|
Gross book value |
$3,197,607 |
$3,033,427 |
$2,956,962 |
|
Indebtedness |
$1,406,102 |
$1,337,229 |
$1,373,881 |
|
Indebtedness to gross book value ratio |
44.0% |
44.1% |
46.5% |
|
Weighted average mortgage interest rate |
3.49% |
3.48% |
3.48% |
|
Weighted average term to maturity on mortgages payable (years) |
5.4 |
5.6 |
5.6 |
|
Exchange rates – United States dollar to Canadian dollar |
$1.42 |
$1.30 |
$1.34 |
|
Exchange rates – Canadian dollar to United States dollar |
$0.70 |
$0.77 |
$0.75 |
|
For the three months ended March 31 |
||
|
(In thousands of dollars, except per Unit amounts) |
2020 |
2019 |
|
Summary of Financial Information |
||
|
Interest coverage ratio |
2.36 |
2.26 |
|
Indebtedness coverage ratio |
1.61 |
1.58 |
|
Revenue from real estate properties |
$62,297 |
$62,258 |
|
NOI |
$17,290 |
$16,837 |
|
Proportionate NOI |
$35,362 |
$31,920 |
|
Same Property Proportionate NOI |
$32,973 |
$31,167 |
|
NOI margin â IFRS |
27.8% |
27.0% |
|
NOI margin â Proportionate |
55.3% |
53.2% |
|
Net income |
$97,160 |
$3,726 |
|
FFO â basic |
$18,107 |
$15,246 |
|
FFO â diluted |
$19,061 |
$16,200 |
|
FFO per Unit â basic |
$0.32 |
$0.30 |
|
FFO per Unit â diluted |
$0.32 |
$0.29 |
|
Distributions per Unit |
$0.1749 |
$0.1698 |
|
FFO payout ratio |
54.3% |
56.7% |
|
Weighted average number of Units outstanding (in thousands): |
||
|
Basic |
56,207 |
50,950 |
|
Diluted |
60,440 |
55,183 |
|
Average exchange rates – United States dollar to Canadian dollar |
$1.34 |
$1.33 |
|
Average exchange rates – Canadian dollar to United States dollar |
$0.74 |
$0.75 |
Operational and Liquidity Update
During March 2020, the outbreak of COVID-19, has resulted in governments enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused an economic slowdown and material disruption to business. Government has reacted with interventions intended to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial performance and financial position of the REIT in future periods.
The REIT recognizes the impact COVID-19 has on many of its tenants in North America and its stakeholders, and is committed in taking measures to protect the health of its employees, tenants and communities. In March, Morguard initiated its crisis management plan with a team mandated to maintain a safe environment for our residents, employees and stakeholders, coordinating efforts across our portfolio, standardizing communications and responding as circumstances demand.
K. Rai Sahi, Chief Executive Officer of Morguard North American Residential REIT commented:
“The unprecedented COVID-19 global event has demonstrated our strength and resilience as an organization. By activating our Crisis Management Team and allocating appropriate resources, we have coordinated efforts across our portfolios and taken definitive action to ensure the health and well-being of those around us. At this unique time, we celebrate our employees and service partners who continue to provide exceptional service to Morguard communities across North America by upholding our core values.”
These are unprecedented times. Everyone has been impacted by the global efforts to reduce the spread of COVID-19. With the guidance of public health authorities, and at the direction of various levels of government, Morguard has implemented measures to help reduce the spread of COVID-19 including:
- eliminating amenities deemed to be risky and ensuring the continuation of critical services;
- intensified cleaning, focusing staff efforts on cleaning high-touch point areas at all our properties using approved cleaning products;
- management offices are staffed but doors are locked;
- maintenance orders for non-emergency repairs have been deferred;
- added additional hand sanitizers to help tenants and residents maintain recommended practices for hand washing; and
- posted health and safety best practice reminders to increase awareness of the most current guidelines.
We are actively monitoring the ongoing developments with regards to COVID-19 and are committed in ensuring a healthy and safe environment, adjusting our service model as necessary.
On March 19, 2020, the Ontario government announced that in accordance with a new order, no new eviction notices will be issued until “further notice” and the enforcement of scheduled evictions will be postponed during the suspension of regular court operations in Ontario. The Landlord and Tenant Board also announced the suspension of eviction orders and all hearings related to eviction applications (unless the matter relates to an urgent issue), although hearings for matters not relating to evictions will proceed by appropriate means (telephone or written hearing).
However, tenants are required to pay rent while an eviction is not being enforced, as clarified by the Ontario government. If the tenant cannot pay due to the pandemic, landlords and tenants are encouraged to work together to come up with an alternative arrangement.
Ontario represents the REIT’s largest region in terms of suites and net operating income and is committed to working with residents on a case-by-case basis on rent deferral arrangements discussed in more detail below. 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.
The following information as of April 28, 2020 provides an operating update on the REIT’s portfolio and liquidity position:
- As at April 28, 2020, the REIT collected approximately 94.8% (95.0% in Canada / 94.7% in the U.S.) of April rental revenue which is materially in line with historical collection rates. 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 has 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. In addition, commencing with April’s rental payment, the REIT has waived the collection of recent rental increases and late fees for existing tenants and will suspend collection of further rental increases during this period of crisis. Currently less than 3.5% of residential tenants have requested deferred payment plans.
- As at April 28, 2020, the REIT’s occupancy remains stable in Canada and the U.S. as leasing agents work remotely and utilize the use of online technology to continue leasing activity following the onset of the pandemic and social distancing guidelines. Generally speaking, current conditions including social distancing has reduced leasing traffic. Management will closely monitor traffic and turnover levels in the coming months as we approach our peak leasing season.
- The REIT has liquidity of $125 million, comprised of approximately $25 million cash and $100 million available under its revolving credit facility with Morguard Corporation, as well the REIT expects $15.4 million of CMHC-insured refinancing proceeds to be funded in May 2020, representing the REIT’s only mortgage scheduled to mature in 2020. In addition, the REIT’s $85.5 million convertible unsecured subordinated debentures do not mature until March 31, 2023, and the REIT has approximately $42.8 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 $97.2 million for the three months ended March 31, 2020, an increase of $93.5 million compared to $3.7 million in 2019. The increase in net income was primarily due to the following:
- An increase in net operating income of $0.5 million;
- A decrease in interest expense of $5.2 million;
- An increase in trust expenses of $0.4 million;
- An increase in equity loss from investment of $1.4 million;
- An increase in foreign exchange gain of $2.1 million;
- A decrease in net fair value gain on real estate properties of $17.4 million due to a higher fair value gain recorded during first quarter of 2019 compared to the fair value gain recorded in 2020;
- An increase in fair value gain on Class B LP Units of $108.5 million resulting from a $5.10 Unit price decrease due to the impact the global health crisis had on the stock market during the first quarter of 2020; and
- An increase in income taxes (current and deferred) of $3.7 million.
Net Operating Income
For the three months ended March 31, 2020, NOI from the REIT’s properties increased by $0.5 million (or 2.7%) to $17.3 million, compared to $16.8 million in 2019. The increase in NOI is due to an increase in Same Property NOI of $0.8 million (or 4.8%) and a net decrease from acquisition and disposition of properties of $0.3 million. The Same Property increase of $0.8 million is due to an increase in Canada of $1.1 million (or 8.7%) and a decrease in the U.S. of US$0.3 million (or 9.3%).
Funds From Operations
Basic FFO for the three months ended March 31, 2020, increased by $2.9 million, or 18.8%, to $18.1 million ($0.32 per Unit), compared to $15.2 million ($0.30 per Unit) in 2019. The increase is mainly due to higher Proportionate NOI of $3.4 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 an increase in trust expenses. The increase in basic FFO includes $0.5 million from a successful property tax appeal at one property, net of consulting fees as well as lower interest expense of $0.5 million due to a loss on extinguishment of mortgages payable in connection with the disposal of five properties in Louisiana in 2019.
Basic FFO per Unit for the three months ended March 31, 2020, increased by $0.02 to $0.32 per Unit, compared to $0.30 per Unit in 2019 due to the following factors:
|
i) |
an increase in Same Property NOI, partially offset by higher trust expenses, had a $0.02 per Unit positive impact; |
|
ii) |
the successful property tax appeal, net of consulting fees had a $0.01 per Unit positive impact; and |
|
iii) |
the issuance of Units on August 28, 2019, which includes the dilution from additional Units 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 the Marquee at Block 37, had a $0.01 per Unit negative impact. |
The REIT’s unaudited condensed consolidated financial statements for the three months ended March 31, 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 months ended March 31, 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 Friday, May 1, 2020 at 3:00 p.m. (ET) to discuss the financial results for the three months ended March 31, 2020 and 2019. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 46475632.
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 13,277 residential suites (as of April 28, 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 March 31, 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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