MISSISSAUGA, ON, July 28, 2020 /CNW/ – Morguard North American Residential REIT (the “REIT”) (TSX: MRG.UN) today announced its financial results for the three and six months ended June 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.
Second Quarter Highlights
The REIT is reporting second quarter performance of:
- Net operating income (“NOI”) of $41.3 million for the three months ended June 30, 2020, an increase of $2.3 million, or 5.8% compared to 2019.
- Same Property Proportionate NOI in Canada increased by $0.8 million (or 6.2%), and in the U.S. increased by $0.7 million (or 4.6%), compared to 2019.
- Basic funds from operations (“FFO”) of $19.3 million for the three months ended June 30, 2020, an increase of $3.6 million, or 23.1% over the same period in 2019.
- Basic FFO of $0.34 per Unit for the three months ended June 30, 2020, a 9.7% increase as compared to the $0.31 per Unit in 2019.
- FFO payout ratio for the three months ended June 30, 2020 of 50.9% compared to 55.1% in 2019.
- Net income of $19.3 million for the three months ended June 30, 2020 compared to net income of $41.9 million over the same period in 2019. The decrease in net income is predominantly due to higher non-cash fair value loss on Class B LP Units and a 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 July 28, 2020, the REIT collected approximately 94.6% (95.8% in Canada / 93.6% in the U.S.) of July rental revenue which is materially in line with historical collection rates.
- As at June 30, 2020, average monthly rent (“AMR”) in Canada increased by 3.9% compared to June 30, 2019, while occupancy remained strong and stable at 97.5% at June 30, 2020, compared to 98.8% at June 30, 2019.
- As at June 30, 2020, AMR in the U.S. on a Same Property basis increased by 3.0% compared to June 30, 2019, while occupancy remained stable at 94.3% at June 30, 2020, compared to 95.2% at June 30, 2019.
- As at July 28, 2020, the REIT’s occupancy remains stable in Canada and the U.S. The onset of COVID-19 and stay-at-home orders disrupted normal traffic patterns throughout the portfolio. Management quickly pivoted to virtual leasing programs to adjust to the new environment.
- As at June 30, 2020, indebtedness to gross book value ratio was 43.5%, compared to 44.1% as at December 31, 2019.
Financial and Operational Highlights
|
As at |
June 30, |
December 31, |
June 30, |
|
(In thousands of dollars, except as noted otherwise) |
2020 |
2019 |
2019 |
|
Operational Information |
|||
|
Number of properties |
43 |
43 |
42 |
|
Total suites |
13,275 |
13,277 |
12,587 |
|
Occupancy percentage â Canada |
97.5% |
98.8% |
98.8% |
|
Occupancy percentage â U.S. |
93.6% |
94.5% |
95.2% |
|
Average monthly rent – Canada (in actual dollars) |
$1,454 |
$1,432 |
$1,399 |
|
Average monthly rent – U.S. (in actual U.S. dollars) |
US$1,424 |
US$1,409 |
US$1,319 |
|
Summary of Financial Information |
|||
|
Gross book value |
$3,172,796 |
$3,033,427 |
$2,952,777 |
|
Indebtedness |
$1,381,741 |
$1,337,229 |
$1,360,870 |
|
Indebtedness to gross book value ratio |
43.5% |
44.1% |
46.1% |
|
Weighted average mortgage interest rate |
3.46% |
3.48% |
3.48% |
|
Weighted average term to maturity on mortgages payable (years) |
5.3 |
5.6 |
5.3 |
|
Exchange rates – United States dollar to Canadian dollar |
$1.36 |
$1.30 |
$1.31 |
|
Exchange rates – Canadian dollar to United States dollar |
$0.73 |
$0.77 |
$0.76 |
|
Three months ended |
Six months ended |
|||
|
June 30 |
June 30 |
|||
|
(In thousands of dollars, except per Unit amounts) |
2020 |
2019 |
2020 |
2019 |
|
Summary of Financial Information |
||||
|
Interest coverage ratio |
2.44 |
2.28 |
2.40 |
2.27 |
|
Indebtedness coverage ratio |
1.67 |
1.60 |
1.64 |
1.59 |
|
Revenue from real estate properties |
$63,202 |
$60,960 |
$125,499 |
$123,218 |
|
NOI |
$41,255 |
$38,989 |
$58,545 |
$55,826 |
|
Proportionate NOI |
$36,361 |
$31,929 |
$71,723 |
$63,849 |
|
Same Property Proportionate NOI |
$34,295 |
$31,893 |
$67,268 |
$63,060 |
|
NOI margin – IFRS |
65.3% |
64.0% |
46.6% |
45.3% |
|
NOI margin – Proportionate |
56.1% |
54.4% |
55.7% |
53.8% |
|
Net income |
$19,264 |
$41,912 |
$116,424 |
$45,638 |
|
FFO – basic |
$19,324 |
$15,697 |
$37,431 |
$30,943 |
|
FFO – diluted |
$20,283 |
$16,656 |
$39,344 |
$32,856 |
|
FFO per Unit – basic |
$0.34 |
$0.31 |
$0.66 |
$0.61 |
|
FFO per Unit – diluted |
$0.34 |
$0.31 |
$0.66 |
$0.60 |
|
Distributions per Unit |
$0.1749 |
$0.1698 |
$0.3498 |
$0.3396 |
|
FFO payout ratio |
50.9% |
55.1% |
52.5% |
55.9% |
|
Weighted average number of Units outstanding (in thousands): |
||||
|
Basic |
56,217 |
50,958 |
56,212 |
50,954 |
|
Diluted |
60,450 |
55,191 |
60,445 |
55,187 |
|
Average exchange rates – United States dollar to Canadian dollar |
$1.39 |
$1.34 |
$1.37 |
$1.33 |
|
Average exchange rates – Canadian dollar to United States dollar |
$0.72 |
$0.75 |
$0.73 |
$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.
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 and we are actively monitoring the ongoing developments and committed in ensuring a healthy and safe environment, adjusting our service model as necessary.
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 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 July 28, 2020 provides an operating update on the REIT’s portfolio and liquidity position:
- As at July 28, 2020, the REIT’s collection of rental revenue since April 2020 is summarized below by region:
|
Region |
April |
May |
June |
July |
|
Canada |
99.4% |
99.0% |
98.3% |
95.8% |
|
U.S. |
99.3% |
98.4% |
96.6% |
93.6% |
|
Total |
99.3% |
98.6% |
97.3% |
94.6% |
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 July 28, 2020, approximately 0.6% of residential tenants have deferred payment plans. In addition, commencing with April’s rental payment, the REIT waived the collection of rental increases on renewals and late fees for existing tenants and will suspend collection of further rental increases during this period of crisis.
- As at July 28, 2020, the REIT’s occupancy remains stable in Canada and the U.S. 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 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 $131 million, comprised of approximately $31 million cash and $100 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 $43.9 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 $19.3 million for the three months ended June 30, 2020 compared to $41.9 million over the same period in 2019. The decrease in net income was primarily due to the following:
- An increase in net operating income of $2.3 million;.
- An increase in interest expense of $0.9 million;
- An increase in trust expenses of $0.4 million;
- An increase in equity income from investments of $0.9 million;
- An increase in foreign exchange loss of $0.5 million;
- An increase in other income of $0.8 million;
- A decrease in net fair value gain on real estate properties of $8.1 million due to a higher fair value gain recorded during second quarter of 2019 compared to the fair value gain recorded over the same period in 2020;
- An increase in fair value loss on Class B LP Units of $19.5 million resulting from a $3.90 Unit price decrease since December 31, 2019, mainly due to the impact the global health crisis had on the stock market during the first half of 2020; and
- A decrease in income taxes (current and deferred) of $2.8 million.
Net Operating Income
Three months ended June 30, 2020
For the three months ended June 30, 2020, NOI from the REIT’s properties increased by $2.3 million (or 5.8%) to $41.3 million, compared to $39.0 million in 2019. The increase in NOI is due to an increase in Same Property NOI of $2.3 million (or 5.9%). The Same Property increase of $2.3 million is due to an increase in Canada of $0.8 million (or 6.2%), an increase in the U.S. of US$0.4 million (or 2.1%) and the change in foreign exchange rate which increased NOI by $1.1 million.
For the three months ended June 30, 2020, Proportionate NOI from the REIT’s properties increased by $4.4 million (or 13.9%) to $36.4 million, compared to $31.9 million in 2019. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $2.4 million (or 7.5%) and a net increase from acquisition and disposition of properties of $2.0 million. The Same Property increase of $2.4 million is due to an increase in Canada of $0.8 million (or 6.2%), an increase in the U.S. of US$0.7 million (or 4.6%) and the change in foreign exchange rate which increased Proportionate NOI by $0.9 million.
Six months ended June 30, 2020
For the six months ended June 30, 2020, NOI from the REIT’s properties increased by $2.7 million (or 4.9%) to $58.5 million, compared to $55.8 million in 2019. The increase in NOI is due to an increase in Same Property NOI of $3.1 million (or 5.6%) and a net decrease from acquisition and disposition of properties of $0.4 million. The Same Property increase of $3.1 million is due to an increase in Canada of $1.9 million (or 7.4%), an increase in the U.S. of US$0.1 million (or 0.6%) and the change in foreign exchange rate which increased NOI by $1.1 million.
For the six months ended June 30, 2020, Proportionate NOI from the REIT’s properties increased by $7.9 million (or 12.3%) to $71.7 million, compared to $63.8 million in 2019. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $4.2 million (or 6.7%) and a net increase from acquisition and disposition of properties of $3.7 million. The Same Property increase of $4.2 million is due to an increase in Canada of $1.9 million (or 7.5%), an increase in the U.S. of US$1.0 million (or 3.6%) and the change in foreign exchange rate which increased Proportionate NOI by $1.3 million.
Funds From Operations
Three months ended June 30, 2020
Basic FFO for the three months ended June 30, 2020, increased by $3.6 million, or 23.1%, to $19.3 million ($0.34 per Unit), compared to $15.7 million ($0.31 per Unit) in 2019. The increase is mainly due to higher Proportionate NOI of $4.4 million and an increase in other income of $0.8 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.
Basic FFO per Unit for the three months ended June 30, 2020, increased by $0.03 to $0.34 per Unit, compared to $0.31 per Unit in 2019 due to the following factors:
- an increase on a Same Property basis predominantly due to an increase in NOI, partially offset by higher trust expenses had a $0.02 per Unit positive impact;
- an increase in other income relating to the Canada Emergency Wage Subsidy (“CEWS”) from an allocation of on-site payroll services relating to the REIT’s Canadian properties provided by Morguard affiliates which had a $0.015 per Unit positive impact;
- 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 $0.015 per Unit negative impact;
- the change in the foreign exchange rate had a $0.01 per Unit positive impact.
Six months ended June 30, 2020
Basic FFO for the six months ended June 30, 2020, increased by $6.5 million, or 21.0%, to $37.4 million ($0.66 per Unit), compared to $30.9 million ($0.61 per Unit) in 2019. The increase is mainly due to higher Proportionate NOI of $7.9 million and an increase in other income of $0.9 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 an increase in trust expenses.
Basic FFO per Unit for the six months ended June 30, 2020, increased by $0.05 to $0.66 per Unit, compared to $0.61 per Unit in 2019 due to the following factors:
- an increase on a Same Property basis predominantly due to an increase in NOI, partially offset by higher trust expenses had a $0.04 per Unit positive impact;
- an increase in other income relating to CEWS (as described above) had a $0.015 per Unit positive impact;
- a successful property tax appeal, net of consulting fees had a $0.01 per Unit positive impact;
- 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 $0.025 per Unit negative impact;
- the change in the foreign exchange rate had a $0.01 per Unit positive impact.
The disposal of five Louisiana properties for the three and six months ended June 30, 2020 had a $nil per Unit impact as the decrease in FFO generated from the properties disposed of during 2019 was offset by the extinguishment of mortgages payable.
The REIT’s unaudited condensed consolidated financial statements for the three and six months ended June 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 six months ended June 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, July 30, 2020 at 3:00 p.m. (ET) to discuss the financial results for the six months ended June 30, 2020 and 2019. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 15862826.
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 July 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 June 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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