Morguard North American Residential Real Estate Investment Trust (MNARF) Q2 2024 Earnings Call ...

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Wed, Oct 9, 2024, 1:50 PM 4 min read

Total Assets: $4.4 billion as of June 30, 2024, up from $4.1 billion at December 31, 2023.
Cash on Hand: $127.8 million at the end of the second quarter of 2024.
Net Income: $50.6 million for Q2 2024, down from $87.5 million in Q2 2023.
Net Operating Income (NOI): $54.6 million for Q2 2024, a 2.2% increase from 2023.
Debt to Gross Book Value Ratio: 39.3% as of June 30, 2024, up from 38.7% at December 31, 2023.
Funds from Operations (FFO): $22.7 million for Q2 2024, a decrease of 4.3% from 2023.
FFO per Unit: $0.41 for Q2 2024, down 2.4% from $0.42 in 2023.
FFO Payout Ratio: 44.6% for Q2 2024, compared to 42.5% in 2023.
Average Monthly Rent (Canada): $1,730 at June 30, 2024, a 6.1% increase from 2023.
Average Monthly Rent (US): USD 1,896 at the end of Q2 2024, a 2.6% increase from 2023.
Occupancy Rate (Canada): 98% at the end of Q2 2024, compared to 98.4% in 2023.
Occupancy Rate (US): 93.3% at June 30, 2024, down from 95.3% in 2023.
Total CapEx: $17.4 million for the six months ended June 30, 2024.

Warning! GuruFocus has detected 8 Warning Signs with MNARF.

Release Date: August 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Morguard North American Residential Real Estate Investment Trust (MNARF) reported an increase in total assets to $4.4 billion, up from $4.1 billion at the end of 2023.
The REIT completed financing of three Canadian properties for $209.6 million at a favorable weighted average interest rate of 4.64% for terms of 10.5 years.
The REIT's debt to gross book value ratio remains conservative at 39.3%, allowing for significant cash retention.
Average monthly rent in Canada increased by 6.1% to $1,730, reflecting the quality of the Canadian portfolio.
The REIT's FFO payout ratio is at a conservative level of 44.6%, allowing for significant cash retention and operational flexibility.

Negative Points

Net income for the second quarter decreased by $36.9 million compared to 2023, primarily due to noncash items such as a decrease in fair value gain on real estate properties.
Occupancy in the US decreased to 93.3% from 95.3% in the previous year, indicating challenges in maintaining tenant retention.
Interest expense increased by $1.1 million due to higher principal and interest rates on refinancings.
FFO per unit decreased by 2.4% to $0.41 per unit, reflecting increased interest expenses and current income tax impacts.
The REIT faces limitations in repurchasing units due to daily volume restrictions, impacting its ability to capitalize on the NCIB plan.

Q & A Highlights

Q: What is the current occupancy rate in the US market, and when do you expect it to improve? A: The US market is currently at 93% occupancy and 95% leased. We expect stabilization between now and the end of August, with a slowdown during the winter months. We use management software to reduce turnover during winter, especially in northern markets. - John Talano, Vice President - Operations, U.S.

Q: How is the new supply affecting your markets, and are you through the worst of it? A: We've seen pressure in Dallas and Tampa, which has subsided. Our markets are generally more mature, with less new supply. In Chicago, we have high occupancies due to limited supply. The economy in Dallas has slowed, and we're backfilling with local residents. - John Talano, Vice President - Operations, U.S.

Q: With significant cash on hand, what is your outlook on acquisitions in Canada versus the US? A: We are looking at opportunities on both sides of the border, focusing on major urban centers. We're seeing better pricing in the US, with opportunities to buy below replacement costs. However, we're not providing specific guidance on capital deployment. - Paul Miatello, Senior Vice President

Q: Given the current trading conditions, is the NCIB the best source of capital, and are you limited by daily volume? A: Yes, the daily volume limitation is a restriction, but we can do one Block Trade per calendar week. Buying back units is a good use of cash, but we are limited in how much we can buy back. - Paul Miatello, Senior Vice President

Q: Can you provide insights into the pricing and cap rates for acquisitions in the US and Canada? A: In the US, we're seeing good quality assets in the high fours to five cap range, with prices around $400,000 per door in markets like Chicago. In Canada, cap rates are typically 50 to 100 bps lower, but financing is less expensive. We are evaluating opportunities in both markets. - Paul Miatello, Senior Vice President

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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