Morguard North American Residential REIT Announces 2019 Results

MISSISSAUGA, ON, Feb. 11, 2020 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the year ended December 31, 2019.

Highlights

The REIT is reporting performance of:

• Net operating income ("NOI") of $132.9 million for the year ended December 31, 2019, an increase of $1.2 million, or 0.9% compared to 2018.
  
  
• Same Property Proportionate NOI increased by $5.3 million (or 4.4%) to $126.6 million, compared to 2018.
  
  
• Basic funds from operations ("FFO") of $64.2 million for the year ended December 31, 2019, an increase of $3.1 million, or 5.0% over the same period in 2018.
  
  
• Basic FFO of $1.22 per Unit for the year ended December 31, 2019, a 1.7% increase as compared to $1.20 per Unit in 2018.
  
  
• FFO payout ratio for the year ended December 31, 2019 of 56.1% compared to 55.2% in 2018.
  
  
• Net income of $80.1 million for the year ended December 31, 2019, compared to $174.7 million over the same period in 2018. The decrease in net income is predominantly due to a lower non-cash fair value gain on real estate properties, partially offset by a lower non-cash fair value loss on Class B LP Units and a decrease in deferred income taxes.

The REIT is reporting the following corporate and portfolio highlights:

• As at December 31, 2019, average monthly rent ("AMR") in Canada increased by 4.3% compared to December 31, 2018, while occupancy remained near a historically high level at 98.8% at December 31, 2019, compared to 99.1% at December 31, 2018.
  
  
• As at December 31, 2019, AMR in the U.S., on a Same Property basis, increased by 3.7% compared to December 31, 2018, while occupancy was stable at 94.6% at December 31, 2019, compared to 95.0% at December 31, 2018.
  
  
• As at December 31, 2019, indebtedness to gross book value ratio of 44.1%, compared to 47.9% as at December 31, 2018.
  
  
• On December 9, 2019, the REIT acquired a 50% interest in the Marquee at Block 37, a property located in Chicago, Illinois, for a purchase price (at the REIT's 50% interest) of $177.7 million (US$134.3 million), including closing costs. The property is a 38-storey apartment building located in the heart of downtown Chicago and features 690 suites and extensive best-in-class amenities. Concurrent with the acquisition, the REIT secured financing in the amount (at the REIT's 50% interest) of $109.2 million (US$82.5 million), with a fixed term of 10 years and an interest rate of 3.27%.
  
  
• On October 29, 2019, the REIT announced an increase to its annual cash distributions by $0.02 per Unit (2.94%) to $0.70 per Unit on an annualized basis from the current level of $0.68 per Unit. The increase became effective for the November 2019 distribution, paid on December 16, 2019.
  
  
• On August 28, 2019, the REIT completed an offering for 5,226,200 Units sold for a price of $19.75 per Unit for aggregate gross proceeds of $103.2 million (the "Offering"). The net proceeds of the Offering, after underwriters' commission and other closing costs was $99.6 million.
  
  
• During the first half of 2019, the REIT sold the five properties located in Louisiana, comprising 843 suites, for gross proceeds of $63.8 million (US$48.0 million), including closing costs. The disposition of the five Louisiana properties, which were constructed between 1967 and 1984, and have an average age of 40 years, follows the sale of the REIT's Alabama properties in July 2017 and is consistent with management's strategy to dispose of non-core assets and to focus on opportunities to acquire properties located in urban centres and major suburban markets in Canada and the United States.

Financial and Operational Highlights

As at December 31
(In thousands of dollars, except as noted otherwise)	2019	2018
Operational Information
Number of properties	43	47
Total suites	13,277	13,430
Occupancy percentage – Canada	98.8%	99.1%
Occupancy percentage – U.S.	94.5%	94.7%
Average monthly rent - Canada (in actual dollars)	$1,432	$1,373
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,409	US$1,236
Summary of Financial Information
Gross book value	$3,033,427	$3,011,469
Indebtedness	$1,337,229	$1,442,607
Indebtedness to gross book value ratio	44.1%	47.9%
Weighted average mortgage interest rate	3.48%	3.49%
Weighted average term to maturity on mortgages payable (years)	5.6	5.8
Exchange rates - United States dollar to Canadian dollar	$1.30	$1.36
Exchange rates - Canadian dollar to United States dollar	$0.77	$0.73

For the years ended December 31
(In thousands of dollars, except per Unit amounts)	2019	2018
Summary of Financial Information
Interest coverage ratio	2.29	2.20
Indebtedness coverage ratio	1.60	1.58
Revenue from real estate properties	$245,596	$241,368
NOI	$132,862	$131,693
Proportionate NOI	$128,338	$125,789
Same Property Proportionate NOI	$126,577	$121,244
NOI margin – IFRS	54.1%	54.6%
NOI margin – Proportionate	53.9%	54.1%
Net income	$80,128	$174,710
FFO – basic	$64,218	$61,161
FFO – diluted	$68,066	$64,983
FFO per Unit – basic	$1.22	$1.20
FFO per Unit – diluted	$1.19	$1.18
Distributions per Unit	$0.6826	$0.6632
FFO payout ratio	56.1%	55.2%
Weighted average number of Units outstanding (in thousands):
Basic	52,766	50,930
Diluted	56,999	55,247
Average exchange rates - United States dollar to Canadian dollar	$1.33	$1.30
Average exchange rates - Canadian dollar to United States dollar	$0.75	$0.77

Net Income

The REIT reported a net income of $80.1 million for the year ended December 31, 2019, compared to $174.7 million in 2018. The change was primarily due to the following:

• An increase in net operating income of $1.2 million;
  
  
• A decrease in interest expense of $0.3 million;
  
  
• An increase in trust expenses of $0.6 million;
  
  
• A decrease in equity income from investment of $0.2 million;
  
  
• An increase in foreign exchange loss of $3.1 million;
  
  
• An increase in other income of $1.4 million;
  
  
• A decrease in net fair value gain on real estate properties of $124.3 million;
  
  
• A decrease in fair value loss on Class B LP Units of $13.4 million; and
  
  
• A decrease in income taxes (current and deferred) of $17.3 million.

Net Operating Income

For the year ended December 31, 2019, NOI from the REIT's properties increased by $1.2 million (or 0.9%) to $132.9 million, compared to $131.7 million in 2018. The increase in NOI is due to an increase in Same Property NOI of $5.3 million (or 4.2%) and a net decrease from acquisition and disposition of properties of $4.1 million. The Same Property increase of $5.3 million is due to an increase in Canada of $1.4 million (or 2.8%), an increase in the U.S. of US$1.6 million (or 2.7%) and the change in foreign exchange rate which increased NOI by $2.3 million.

Funds From Operations

Basic FFO for the year ended December 31, 2019, increased by $3.1 million, or 5.0%, to $64.2 million ($1.22 per Unit), compared to $61.1 million ($1.20 per Unit) in 2018. The increase is mainly due to higher Proportionate NOI of $2.5 million and an increase in other income of $1.4 million, partially offset by an increase in trust expenses of $0.6 million. In addition, interest expense includes a lower non-cash amortization of mark-to-market adjustments of $0.4 million and a $0.6 million loss on extinguishment of mortgages payable in connection with the disposal of five Louisiana properties.

Basic FFO per Unit for the year ended December 31, 2019, increased by $0.02 to $1.22 per Unit, compared to $1.20 per Unit in 2018 due to the following factors:

1. the change in foreign exchange rate had a $0.02 per Unit positive impact;
2.  the disposal of the five Louisiana properties had a $0.035 per Unit negative impact;
3. the acquisition on May 22, 2019, of partial interests in three properties controlled by the REIT located in Mississauga, Ontario, had a $0.005 per Unit positive impact; and
4. the issuance of Units on August 28, 2019, which includes the dilution from additional Units of the Offering offset by approximately four months of interest income earned on proceeds advanced on the Morguard Facility, including the partial use of proceeds on December 9, 2019, to acquire the Marquee at Block 37, had a $0.02 per Unit negative impact.

The REIT's audited consolidated financial statements for the year ended December 31, 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 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 year ended December 31, 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 Friday, February 14, 2020 at 3:00 p.m. (ET) to discuss the financial results for the year ended December 31, 2019 and 2018. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546.  Please quote conference ID 55605474.

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 February 11, 2020) 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 December 31, 2019. For more information, visit the REIT's website at www.morguard.com.

SOURCE Morguard North American Residential Real Estate Investment Trust

Morguard North American Residential REIT, K. Rai Sahi, Chief Executive Officer, [phone]; Christopher A. Newman, Chief Financial Officer, [phone]

Related Links

www.morguard.com