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
– Canada
|
96.4%
|
98.8%
|
99.4%
|
Occupancy percentage
– 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