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Morguard North American Residential REIT Announces 2024 First Quarter Results

T.MRG.DB.B | April 30, 2024

MISSISSAUGA, ON, April 30, 2024 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2024.

Highlights

The REIT is reporting first quarter performance of:

Net operating income ("NOI") of $20.6 million for the three months ended March 31, 2024, an increase of $1.3 million, or 6.6% compared to 2023.
Same Property Proportionate NOI in Canada increased by $1.7 million (or 12.0%), and in the U.S. increased by US$0.4 million (or 2.0%), compared to 2023.
Net income of $24.8 million for the three months ended March 31, 2023, a decrease of $9.5 million, or 27.7% compared to 2023, predominantly due to a lower net fair value gain, partially offset by a decrease in deferred income tax.
Basic funds from operations ("FFO") of $22.5 million for the three months ended March 31, 2024, an increase of $0.6 million, or 2.6% over the same period in 2023.
Basic FFO of $0.41 per Unit for the three months ended March 31, 2024, a 5.1% increase as compared to $0.39 per Unit in 2023.
FFO payout ratio for the three months ended March 31, 2024 of 45.1% compared to 46.1% in 2023.

The REIT is reporting the following corporate and portfolio highlights:

As at March 31, 2024, average monthly rent ("AMR") in Canada increased by 5.6% compared to March 31, 2023, while occupancy was 98.4% at March 31, 2024, compared to 98.6% at March 31, 2023.
As at March 31, 2024, AMR in the U.S. increased by 3.6% compared to March 31, 2023, while occupancy was 94.0% at March 31, 2024, compared to 95.0% at March 31, 2023.
As at March 31, 2024, indebtedness to gross book value ratio decreased to 38.0%, compared to 38.7% as at December 31, 2023.

Financial and Operational Highlights

As at	March 31,	December 31,	March 31,
(In thousands of dollars, except as otherwise noted)	2024	2023	2023
Operational Information
Number of properties	43	42	43
Total suites	13,089	13,089	13,089

Occupancy percentage – Canada	98.4 %	98.7 %	98.6 %
Occupancy percentage – U.S.	94.0 %	94.2 %	95.0 %
Average monthly rent - Canada (in actual dollars)	$1,703	$1,674	$1,613
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,880	US$1,875	US$1,815

Summary of Financial Information
Gross book value(1)	$4,212,233	$4,095,931	$4,105,798
Indebtedness(1)	$1,598,821	$1,583,311	$1,598,492

Indebtedness to gross book value ratio(1)	38.0 %	38.7 %	38.9 %
Weighted average mortgage interest rate	3.72 %	3.72 %	3.52 %
Weighted average term to maturity on mortgages payable (years)	4.6	4.9	4.7

(1)

Represents a non-GAAP financial measure/ratio that does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. This measure should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS.

For the three months ended March 31
(In thousands of dollars, except per Unit amounts)	2024	2023
Summary of Financial Information
Revenue from real estate properties	$84,756	$79,648
NOI	$20,587	$19,308
Proportionate NOI(1)	$44,903	$41,664
Same Property Proportionate NOI(1)	$43,798	$41,646
NOI margin - IFRS	24.3 %	24.2 %
NOI margin – Proportionate(1)	53.2 %	52.6 %
Net income	$24,776	$34,249

FFO – basic(1)	$22,534	$21,954
FFO – diluted(1)	$23,374	$23,022
FFO per Unit – basic(1)	$0.41	$0.39
FFO per Unit – diluted(1)	$0.41	$0.38
Distributions per Unit	$0.18501	$0.1800
FFO payout ratio(1)	45.1 %	46.1 %
Weighted average number of Units outstanding (in thousands):
Basic	54,966	56,281
Diluted	57,285	60,708

(1)

Represents a non-GAAP financial measure/ratio that does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. This measure should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS.

Specified Financial Measures

The REIT reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, this earnings release also uses specified financial measures that are not defined by IFRS, which follow the disclosure requirements established by National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. Specified financial measures are categorized as non-GAAP financial measures, non-GAAP ratios, and other financial measures. Additional details on specified financial measures including supplementary financial measures, capital management measures and total segment measures are set out in the REIT's Management's Discussion and Analysis for the three months ended March 31, 2024 and available on the REIT's profile on SEDAR+ at www.sedarplus.ca.

The following Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. These measures should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. The REIT's management uses these measures to aid in assessing the REIT's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP financial measures, which supplement the IFRS measures, provide readers with a more comprehensive understanding of management's perspective on the REIT's operating results and performance.

A reconciliation of each non-GAAP financial measure referred to in this earnings release is provided below.

Proportionate Share NOI ("Proportionate NOI") & Same Property Proportionate NOI

Proportionate NOI and Same Property Proportionate NOI are important measures in evaluating the operating performance of the REIT's real estate properties and are a key input in determining the fair value of the REIT's properties. Proportionate NOI represents NOI (an IFRS measure) adjusted for the following: i) to exclude the impact of realty taxes accounted for under International Financial Reporting Interpretations Committee ("IFRIC") Interpretation 21, Levies ("IFRIC 21"). Proportionate NOI records realty taxes for all properties on a pro rata basis over the entire fiscal year; ii) to exclude the non-controlling interest share of NOI for those properties that are consolidated under IFRS ("NCI Share"); and iii) to include equity-accounted investments NOI at the REIT's ownership interest ("Equity Interest").

Same Property Proportionate NOI is presented in this earnings release because management considers this non-GAAP measure to be an important measure of the REIT's operating performance, representing Proportionate NOI for properties owned by the REIT continuously for the current and comparable reporting period and does not take into account the impact of the operating performance of property acquisitions and dispositions as well as development properties until reaching stabilized occupancy. In addition, Same Property Proportionate NOI is presented in local currency and by country, isolating any impact of foreign exchange fluctuations.

The following table provides a reconciliation of Proportionate Share NOI and Same Property Proportionate Share NOI to its closely related financial statement measurement for the following periods:

					2024					2023
		Non-GAAP Adjustments					Non-GAAP Adjustments
For the three months ended					Proportionate					Proportionate
March 31		NCI	Equity		Basis		NCI	Equity		Basis
(In thousands of dollars)	IFRS	Share	Interest	IFRIC 21	(Non-GAAP)	IFRS	Share	Interest	IFRIC 21	(Non-GAAP)
Revenue from properties
Same Property	$82,361	($4,356)	$3,928	$—	$81,993	$79,574	($4,180)	$3,772	$—	$79,166
Acquisition	2,395	—	—	—	2,395	74	—	—	—	74
Total revenue from properties	84,756	(4,356)	3,928	—	84,328	79,648	(4,180)	3,772	—	79,240
Property operating expenses
Same Property	61,625	(4,232)	3,722	(22,980)	38,135	60,299	(3,940)	4,028	(22,867)	37,520
Acquisition	2,544	—	—	(1,254)	1,290	41	—	—	15	56
Total property operating expenses	64,169	(4,232)	3,722	(24,234)	39,425	60,340	(3,940)	4,028	(22,852)	37,576
NOI
Same Property	20,736	(124)	206	22,980	43,798	19,275	(240)	(256)	22,867	41,646
Acquisition/Disposition	(149)	—	—	1,254	1,105	33	—	—	(15)	18
Total NOI	$20,587	($124)	$206	$24,234	$44,903	$19,308	($240)	($256)	$22,852	$41,664
NOI Margin	24.3 %				53.2 %	24.2 %				52.6 %

Funds From Operations

FFO (and FFO per Unit) is a non-GAAP financial measure widely used as a real estate industry standard that supplements net income and evaluates operating performance but is not indicative of funds available to meet the REIT's cash requirements. FFO can assist with comparisons of the operating performance of the REIT's real estate between periods and relative to other real estate entities. FFO is computed by the REIT in accordance with the current definition of the Real Property Association of Canada ("REALPAC") and is defined as net income attributable to Unitholders adjusted for fair value adjustments, distributions on the Class B LP Units, realty taxes accounted for under IFRIC 21, deferred income taxes (on the REIT's U.S. properties), gains/losses on the sale of real estate properties (including income taxes on the sale of real estate properties) and other non-cash items. The REIT considers FFO to be a useful measure for reviewing its comparative operating and financial performance. FFO per Unit is calculated as FFO divided by the weighted average number of Units outstanding (including Class B LP Units) during the period.

The following table provides a reconciliation of FFO to its closely related financial statement measurement for the following periods:

For the three months ended March 31
(In thousands of dollars, except per Unit amounts)	2024	2023
Net income for the period attributable to Unitholders	$25,731	$29,495
Add/(deduct):
Realty taxes accounted for under IFRIC 21	24,234	22,852
Fair value gain on conversion option on the convertible debentures	(152)	(289)
Distributions on Class B LP Units recorded as interest expense	3,186	3,100
Foreign exchange loss	2	1
Fair value gain on real estate properties, net	(54,720)	(70,686)
Non-controlling interests' share of fair value gain on real estate properties	102	5,622
Fair value loss on Class B LP Units	20,323	20,668
Deferred income tax expense	3,828	11,191
FFO – basic	$22,534	$21,954
Interest expense on the convertible debentures	840	1,068
FFO – diluted	$23,374	$23,022
FFO per Unit – basic	$0.41	$0.39
FFO per Unit – diluted	$0.41	$0.38

Weighted average number of Units outstanding (in thousands):
Basic	54,966	56,281
Diluted	57,285	60,708

Indebtedness and Gross Book Value

Indebtedness (as defined in the REIT's Declaration of Trust) is a measure of the amount of debt financing utilized by the REIT. Indebtedness is presented in this earnings release because management considers this non-GAAP financial measure to be an important measure of the REIT's financial position.

Gross book value (as defined in the REIT's Declaration of Trust) is a measure of the value of the REIT's assets. Gross book value is presented in this earnings release because management considers this non-GAAP financial measure to be an important measure of the REIT's asset base and financial position.

The following table provides a reconciliation of gross book value and indebtedness as defined in the REIT's Declaration of Trust from their IFRS financial statement presentation:

As at	March 31,	December 31,
(In thousands of dollars)	2024	2023
Total Assets / Gross book value	$4,212,233	$4,095,931
Mortgage payable	$1,511,221	$1,495,362
Add: Deferred financing costs	13,033	13,628
Mark-to-market adjustment	2,135	2,262
	1,526,389	1,511,252
Convertible debentures, face value	56,000	56,000
Lease liabilities	16,432	16,059
Indebtedness	$1,598,821	$1,583,311
Indebtedness / Gross book value	38.0 %	38.7 %

Non-GAAP Ratios

Non-GAAP ratios do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other reporting issuers in similar or different industries. These measures should be considered as supplemental in nature and not as substitutes for related financial information prepared in accordance with IFRS. The REIT's management uses these measures to aid in assessing the REIT's underlying core performance and provides these additional measures so that investors may do the same. Management believes that the non-GAAP ratios described below, provide readers with a more comprehensive understanding of management's perspective on the REIT's operating results and performance.

The following discussion describes the non-GAAP ratios the REIT uses in evaluating its operating results:

Proportionate NOI Margin

Proportionate NOI margin is calculated as Proportionate NOI divided by revenue (on a Proportionate Basis) and is an important measure in evaluating the operating performance (including the level of operating expenses) of the REIT's real estate properties. Proportionate NOI margin is presented in this earnings release because management considers this non-GAAP ratio to be an important measure of the REIT's operating performance and financial position.

FFO Payout Ratio

FFO payout ratio compares distributions declared (including Class B LP Units) to FFO. Distributions declared (including Class B LP Units) is calculated based on the monthly distribution per Unit multiplied by the weighted average number of Units outstanding (including Class B LP Units) during the period and is an important metric in assessing the sustainability of retained cash flow to fund capital expenditures and distributions. FFO payout ratio is presented in this earnings release because management considers this non-GAAP ratio to be an important measure of the REIT's operating performance and financial position.

Indebtedness to Gross Book Value Ratio

Indebtedness to gross book value ratio is a compliance measure in the REIT's Declaration of Trust and establishes the limit for financial leverage of the REIT. Indebtedness to gross book value ratio is presented in this earnings release because management considers this non-GAAP ratio to be an important measure of the REIT's financial position.

Subsequent Event

Subsequent to March 31, 2024, the REIT entered into binding commitment letters for the Canada Mortgage and Housing Corporation ("CMHC") insured refinancing of three multi-suite residential properties located in Mississauga, Ontario, providing gross proceeds of up to $203.7 million. The REIT expects to close the refinancing during the second quarter of 2024. The maturing mortgages amount to $90.9 million, and have a weighted average interest rate of 3.36%.

The REIT's condensed consolidated financial statements for the three months ended March 31, 2024, 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.sedarplus.ca.

Conference Call Details

Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday, May 2, 2024 at 3:00 p.m. (ET) to discuss the financial results for the three months ended March 31, 2024 and 2023. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 45541441.

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 13,089 residential suites and 239,500 square feet of commercial area (as of April 30, 2024) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $4.0 billion at March 31, 2024. For more information, visit the REIT's website at www.morguard.com.