Morguard North American Residential REIT Announces 2023 First Quarter Results

MISSISSAUGA, ON, April 25, 2023 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2023.

Highlights

The REIT is reporting first quarter performance of:

• Net operating income ("NOI") of $19.3 million for the three months ended March 31, 2023, an increase $1.9 million, or 10.8% compared to 2022.
• Same Property Proportionate NOI in Canada increased by 12.8%, and in the U.S. increased by 10.1%, compared to 2022.
• Net income of $34.2 million for the three months ended March 31, 2023, a decrease of $136.9 million compared to 2022.
• Basic funds from operations ("FFO") of $22.0 million for the three months ended March 31, 2023, an increase of $3.6 million, or 19.9% over the same period in 2022.
• Basic FFO of $0.39 per Unit for the three months ended March 31, 2023, an 18.2% increase as compared to $0.33 per Unit in 2022.
• FFO payout ratio for the three months ended March 31, 2023 of 46.1% compared to 53.8% in 2022.

The REIT is reporting the following corporate and portfolio highlights:

• During the first quarter, the REIT acquired from Morguard Corporation the remaining 50% interest in Fenestra at Rockville Town Square, comprising 492 residential suites, for a purchase price of $96.9 million (US$71.5 million), including closing costs, and assumed mortgages payable of $46.0 million (US$34.0 million).
• During the first quarter, the REIT acquired Xavier Apartments, a multi-suite residential property comprising 240 suites located in Chicago, Illinois, for a purchase price of $113.8 million (US$83.8 million), including closing costs.
• The REIT issued $56.0 million of 6.0% convertible unsecured subordinated debentures, and fully repaid $85.5 million of 4.5% convertible unsecured subordinated debentures.
• As at March 31, 2023, average monthly rent ("AMR") in the U.S., on a Same Property basis, increased by 11.3% compared to March 31, 2022, while occupancy was 95.0% at March 31, 2023, compared to 96.3% at March 31, 2022.
• As at March 31, 2023, AMR in Canada increased by 3.7% compared to March 31, 2022, while occupancy improved to 98.6% at March 31, 2023, compared to 93.8% at March 31, 2022.
• As at March 31, 2023, indebtedness to gross book value ratio of 38.9%, compared to 38.0% as at December 31, 2022.
• As at March 31, 2023, the REIT's total assets were valued at $4.1 billion compared to $3.9 billion as at December 31, 2022.

Financial and Operational Highlights

As at	March 31,	December 31,	March 31,
(In thousands of dollars, except as otherwise noted)	2023	2022	2022
Operational Information
Number of properties	43	42	43
Total suites	13,089	12,849	13,275
Occupancy percentage – Canada	98.6 %	98.6 %	93.8 %
Occupancy percentage – U.S.	95.0 %	95.3 %	96.3 %
Average monthly rent - Canada (in actual dollars)	$1,613	$1,588	$1,556
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,815	US$1,771	US$1,571
Summary of Financial Information
Gross book value^(1)	$4,105,798	$3,934,417	$3,691,992
Indebtedness^(1)	$1,598,492	$1,496,179	$1,376,107
Indebtedness to gross book value ratio^(1)	38.9 %	38.0 %	37.3 %
Weighted average mortgage interest rate	3.52 %	3.50 %	3.31 %
Weighted average term to maturity on mortgages payable (years)	4.7	4.9	4.7
Exchange rates - United States dollar to Canadian dollar	$1.35	$1.35	$1.25
Exchange rates - Canadian dollar to United States dollar	$0.74	$0.74	$0.80

(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)	2023	2022
Summary of Financial Information
Revenue from real estate properties	$79,648	$65,257
NOI	$19,308	$17,424
Proportionate NOI^(1)	$41,664	$35,127
Same Property Proportionate NOI^(1)	$38,307	$33,093
NOI margin - IFRS	24.2 %	26.7 %
NOI margin – Proportionate^(1)	52.6 %	52.8 %
Net income	$34,249	$171,142
FFO – basic^(1)	$21,954	$18,307
FFO – diluted^(1)	$23,022	$19,250
FFO per Unit – basic^(1)	$0.39	$0.33
FFO per Unit – diluted^(1)	$0.38	$0.32
Distributions per Unit	$0.1800	$0.1749
FFO payout ratio^(1)	46.1 %	53.8 %
Weighted average number of Units outstanding (in thousands):
Basic	56,281	56,293
Diluted	60,708	60,526
Average exchange rates - United States dollar to Canadian dollar	$1.35	$1.27
Average exchange rates - Canadian dollar to United States dollar	$0.74	$0.79

(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, 2023 and available on the REIT's profile on SEDAR at www.sedar.com.

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:

					2023					2022
		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	$72,164	($4,180)	$3,772	$—	$71,756	$60,809	($3,455)	$4,705	$—	$62,059
Acquisition/Disposition	7,484	—	—	—	7,484	4,448	—	—	—	4,448
Total revenue from properties	79,648	(4,180)	3,772	—	79,240	65,257	(3,455)	4,705	—	66,507
Property operating expenses
Same Property	52,547	(3,940)	4,028	(19,186)	33,449	43,567	(3,565)	5,400	(16,436)	28,996
Acquisition/Disposition	7,793	—	—	(3,666)	4,127	4,266	—	—	(1,852)	2,414
Total property operating expenses	60,340	(3,940)	4,028	(22,852)	37,576	47,833	(3,565)	5,400	(18,288)	31,380
NOI
Same Property	19,617	(240)	(256)	19,186	38,307	17,242	110	(695)	16,436	33,093
Acquisition/Disposition	(309)	—	—	3,666	3,357	182	—	—	1,852	2,034
Total NOI	$19,308	($240)	($256)	$22,852	$41,664	$17,424	$110	($695)	$18,288	$35,127
NOI Margin	24.2 %				52.6 %	26.7 %				52.8 %

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)	2023	2022
Net income for the period attributable to Unitholders	$29,495	$162,430
Add/(deduct):
Realty taxes accounted for under IFRIC 21	22,852	18,288
Fair value loss (gain) on conversion option on the convertible debentures	(289)	2,150
Distributions on Class B LP Units recorded as interest expense	3,100	3,012
Foreign exchange loss	1	15
Fair value gain on real estate properties, net	(70,686)	(250,477)
Non-controlling interests' share of fair value gain on real estate properties	5,622	9,750
Fair value loss on Class B LP Units	20,668	32,724
Deferred income tax expense	11,191	40,415
FFO – basic	$21,954	$18,307
Interest expense on the convertible debentures	1,068	943
FFO – diluted	$23,022	$19,250
FFO per Unit – basic	$0.39	$0.33
FFO per Unit – diluted	$0.38	$0.32
Weighted average number of Units outstanding (in thousands):
Basic	56,281	56,293
Diluted	60,708	60,526

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)	2023	2022
Total Assets / Gross book value	$4,105,798	$3,934,417
Mortgage payable	$1,462,243	$1,382,174
Add: Deferred financing costs	11,591	12,270
Mark-to-market adjustment	2,842	—
	1,477,026	1,394,444
Convertible debentures, face value	56,000	85,500
Morguard Facility	49,252	—
Lease liability	16,214	16,235
Indebtedness	$1,598,492	$1,496,179
Indebtedness / Gross book value	38.9 %	38.0 %

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 Events

The REIT entered into a binding agreement for the CMHC-financing of a multi-suite residential property located in Toronto, Ontario, in the amount of $61.1 million at an interest rate of 4.18% and for a term of 10 years. The maturing mortgage amounts to $24.6 million and has an interest rate of 2.96%. The REIT expects the refinancing to close at the maturing mortgage's scheduled maturity on May 1, 2023.

The REIT entered into binding agreements for the refinancing of two multi-suite residential properties located in Atlanta, Georgia, and Cary, North Carolina, for an aggregate amount of $82.7 million (US$61.1 million) at an interest rate of 5.06% and for terms of 10 years. The maturing mortgages amount to $61.0 (US$45.1 million) and have a weighted average interest rate of 3.51%. The REIT expects the refinancings to close at the maturing mortgage's scheduled maturity on May 1, 2023.

The REIT's condensed consolidated financial statements for the three months ended March 31, 2023, 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.

Conference Call Details

Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday,

April 27, 2023 at 3:00 p.m. (ET) to discuss the financial results for the three months ended March 31, 2023 and 2022. To participate in the conference call, please dial 416-764-8688 or 1-888-390-0546. Please quote conference ID 30757847.

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 25, 2023) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $3.9 billion at March 31, 2023. 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]