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Morguard North American Residential REIT Announces 2020 Results

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MISSISSAUGA, ON, Feb. 16, 2021 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the year ended December 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.

Morguard North American Residential Real Estate Investment Trust Logo (CNW Group/Morguard North American Residential Real Estate Investment Trust)
Morguard North American Residential Real Estate Investment Trust Logo (CNW Group/Morguard North American Residential Real Estate Investment Trust)

Highlights

The REIT is reporting performance of:

  • Net operating income ("NOI") of $135.5 million for the year ended December 31, 2020, an increase of $2.6 million, or 2.0% compared to 2019.

  • Same Property Proportionate NOI in Canada increased by $1.6 million (or 3.1%), and in the U.S. increased by US$1.0 million (or 1.8%), compared to 2019.

  • Basic funds from operations ("FFO") of $68.9 million for the year ended December 31, 2020, an increase of $4.7 million, or 7.4% over the same period in 2019.

  • Basic FFO of $1.23 per Unit for the year ended December 31, 2020, a 0.8% increase as compared to the $1.22 per Unit in 2019.

  • FFO payout ratio for the year ended December 31, 2020 of 57.0% compared to 56.1% in 2019.

  • Net income of $166.8 million for the year ended December 31, 2020, an increase of $86.7 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 February 16, 2021, the REIT collected 98.7% of fourth quarter rental revenue and approximately 97.5% (98.0% in Canada / 97.1% in the U.S.) of January 2021 rental revenue which is materially in line with historical collection rates.

  • As at December 31, 2020, average monthly rent ("AMR") in Canada increased by 4.7% compared to December 31, 2019, while occupancy was 94.9% at December 31, 2020, compared to 98.8% at December 31, 2019. Occupancy in Canada declined due to reduced leasing traffic, lower immigration levels as well as two properties impacted by university closures.

  • As at December 31, 2020, AMR in the U.S., on a Same Property basis, increased by 1.3% compared to December 31, 2019, while occupancy was stable at 93.6% at December 31, 2020, compared to 94.5% at December 31, 2019.

  • As at December 31, 2020, indebtedness to gross book value ratio of 42.8%, lower compared to 44.1% as at December 31, 2019.

  • The REIT substantially completed the redevelopment of its Class A mid-rise residential property, 1643 Josephine, New Orleans, Louisiana, with first occupancies taking place in late-October.

Financial and Operational Highlights

As at December 31



(In thousands of dollars, except as noted otherwise)

2020

2019

Operational Information



Number of properties

43

43

Total suites

13,275

13,277




Occupancy percentage – Canada

94.9%

98.8%

Occupancy percentage – U.S.

92.2%

94.5%

Average monthly rent - Canada (in actual dollars)

$1,500

$1,432

Average monthly rent - U.S. (in actual U.S. dollars)

US$1,428

US$1,409

Summary of Financial Information



Gross book value

$3,084,358

$3,033,427

Indebtedness

$1,320,708

$1,337,229




Indebtedness to gross book value ratio

42.8%

44.1%

Weighted average mortgage interest rate

3.45%

3.48%

Weighted average term to maturity on mortgages payable (years)

4.8

5.6

Exchange rates - United States dollar to Canadian dollar

$1.27

$1.30

Exchange rates - Canadian dollar to United States dollar

$0.79

$0.77

For the years ended December 31


(In thousands of dollars, except per Unit amounts)

2020

2019

Summary of Financial Information



Interest coverage ratio

2.32

2.29

Indebtedness coverage ratio

1.58

1.60




Revenue from real estate properties

$248,683

$245,596

NOI

$135,533

$132,862

Proportionate NOI

$137,965

$128,338

Same Property Proportionate NOI

$130,407

$126,577

NOI margin - IFRS

54.5%

54.1%

NOI margin - Proportionate

54.3%

53.9%

Net income

$166,805

$80,128




FFO - basic

$68,945

$64,218

FFO - diluted

$72,793

$68,066

FFO per Unit - basic

$1.23

$1.22

FFO per Unit - diluted

$1.20

$1.19

Distributions per Unit

$0.6996

$0.6826

FFO payout ratio

57.0%

56.1%

Weighted average number of Units outstanding (in thousands):



Basic

56,222

52,766

Diluted

60,455

56,999

Average exchange rates - United States dollar to Canadian dollar

$1.34

$1.33

Average exchange rates - Canadian dollar to United States dollar

$0.75

$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 and the Landlord and Tenant Board ("LTB") began working through its backlog of pending eviction orders, gradually expanding services in August however, all in-person service counters remain closed until further notice. Effective August 1, 2020, the LTB started to issue eviction orders that are pending, issue consent eviction orders which are based on landlord and tenants settling their dispute through an agreement and scheduled hearings for non-urgent evictions.

On December 26, 2020, the Ontario government announced another province-wide shutdown and stay-at-home Order; and further announced on February 8, 2021, the transition to a regional approach to staged reopening. During this state of emergency, the Ontario government has issued an emergency order temporarily halting the enforcement of residential evictions. While the LTB will continue to hear eviction applications and issue eviction orders, these orders will not be carried out while the province is under a state of emergency.

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 titled Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19 for eligible tenants until December 31, 2020 which has subsequently been extended to March 31, 2021.

In September 2020, the Government of Ontario introduced Helping Tenants and Small Businesses Act legislation to freeze rent in 2021. 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 AGIs at seven Ontario properties providing additional rent increases for a twelve-month period commencing at various effective dates in 2020, ranging from 0.50% to 2.00% and five other pending applications that will provide AGIs 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 February 16, 2021 provides an operating update on the REIT's portfolio and liquidity position:

  • As at February 16, 2021, the REIT's collection of rental revenue during 2020 is summarized by region:


Region

Q1

2020

Q2

2020

Q3

2020

October

2020

November

2020

December

2020

Rental

Revenue


Canada

99.8%

99.8%

99.5%

99.4%

99.0%

99.0%

38.1%


U.S.

100.0%

99.7%

99.5%

99.0%

98.3%

98.0%

61.9%


Total

99.9%

99.7%

99.5%

99.2%

98.6%

98.4%

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 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 February 16, 2021, 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 February 16, 2021, the REIT's occupancy in Canada and in the U.S. with the exception of a few properties directly impacted by university and local business closures remains stable 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 Ontario's current state of emergency as well as the extension of the U.S. eviction moratorium may have on traffic and turnover levels in the coming months.

  • The REIT has liquidity of $120.7 million, comprised of approximately $27.3 million in cash and $93.4 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 $45.3 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 $166.8 million for the year ended December 31, 2020, an increase of $86.7 million compared to compared to $80.1 million in 2019. The increase in net income was primarily due to the following:

  • An increase in net operating income of $2.6 million;

  • A decrease in interest expense of $3.7 million;

  • An increase in trust expenses of $0.9 million;

  • A decrease in equity income from investments of $10.0 million, mainly due to a higher fair value loss on real estate properties;

  • A decrease in foreign exchange gain of $0.6 million;

  • A decrease in other income of $1.1 million;

  • An increase in net fair value gain on real estate properties of $16.3 million;

  • An increase in fair value gain on Class B LP Units of $66.8 million; and

  • A decrease in income taxes (current and deferred) of $8.5 million.

Net Operating Income

For the year ended December 31, 2020, NOI from the REIT's properties increased by $2.6 million (or 2.0%) to $135.5 million, compared to $132.9 million in 2019. The increase in NOI is due to an increase in Same Property NOI of $3.1 million (or 2.4%) and a net decrease from acquisition and disposition of properties of $0.5 million. The Same Property increase of $3.1 million is due to an increase in Canada of $1.6 million (or 3.1%) and an increase in the U.S. of US$0.5 million (or 0.8%) and the change in foreign exchange rate which increased NOI by $1.0 million.

For the year ended December 31, 2020, Proportionate NOI from the REIT's properties increased by $9.6 million (or 7.5%) to $138.0 million, compared to $128.4 million in 2019. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $3.8 million (or 3.0%) and a net increase from acquisition and disposition of properties of $5.8 million. The Same Property increase of $3.8 million is due to an increase in Canada of $1.6 million (or 3.1%), an increase in the U.S. of US$1.0 million (or 1.8%) and the change in foreign exchange rate which increased Proportionate NOI by $1.2 million.

Funds From Operations

Basic FFO for the year ended December 31, 2020, increased by $4.7 million (or 7.4%) to $68.9 million ($1.23 per Unit), compared to $64.2 million ($1.22 per Unit) in 2019. The increase is mainly due to higher Proportionate NOI of $9.6 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), an increase in trust expenses and a decrease in other income.

Basic FFO per Unit for the year ended December 31, 2020, increased by $0.01 to $1.23 per Unit, compared to $1.22 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 and lower Morguard Facility interest income earned, had a $0.045 per Unit positive impact, of which a successful property tax appeal, net of consulting fees contributed $0.01 per Unit;

ii)

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 and additional FFO generated from the acquisition of Marquee at Block 37 on December 9, 2019, had a $0.045 per Unit negative impact; and

iii)

the change in the foreign exchange rate had a $0.01 per Unit positive impact.

For the year ended December 31, 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 audited consolidated financial statements for the year ended December 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 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, 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, February 18, 2021 at 3:00 p.m. (ET) to discuss the financial results for the years ended December 31, 2020 and 2019. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 63391237.

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 February 16, 2021) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $3.0 billion at December 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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