Morguard North American Residential REIT Announces 2024 Results

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CNW Group

Tue, Feb 11, 2025, 2:30 PM 17 min read

Net operating income ("NOI") of $181.4 million for the year ended December 31, 2024, an increase of $1.2 million, or 0.7% compared to 2023. The change in foreign exchange rate increased NOI by $0.4 million.
Same Property Proportionate NOI in Canada increased by $4.5 million (or 7.2%), and in the U.S. decreased by US$3.4 million (or 4.0%), compared to 2023.
Net income of $99.4 million for the year ended December 31, 2024, a decrease of $85.9 million, or 46.4% compared to 2023, predominantly due to a lower net fair value gain.
Basic funds from operations ("FFO") of $1.65 per Unit for the year ended December 31, 2024, as compared to the $1.65 per Unit in 2023.
Basic FFO of $89.9 million for the year ended December 31, 2024, a decrease of $2.1 million, or 2.3% over the same period in 2023.

The REIT is reporting the following corporate and portfolio highlights:

During the year ended December 31, 2024, the REIT completed the refinancing of five Canadian properties located in Mississauga, Ontario, providing gross mortgage proceeds of $319.0 million at a weighted average interest rate of 4.34%. The maturing mortgages had a balance at maturity of $141.0 million at a weighted average interest rate of 3.29%, resulting in net proceeds of $178.0 million, before financing costs.
As at December 31, 2024, average monthly rent ("AMR") in Canada increased by 5.9% compared to December 31, 2023, while occupancy remained strong and stable at 97.2% at December 31, 2024, compared to 98.7% at December 31, 2023.
As at December 31, 2024, AMR in the U.S., increased by 1.7% compared to December 31, 2023, while occupancy was 93.8% at December 31, 2024, compared to 94.2% at December 31, 2023.
As at December 31, 2024, indebtedness to gross book value ratio of 39.7%, compared to 38.7% as at December 31, 2023.

Financial and Operational Highlights

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

Occupancy percentage – Canada	97.2 %	98.7 %
Occupancy percentage – U.S.	93.8 %	94.2 %
Average monthly rent - Canada (in actual dollars)	$1,772	$1,674
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,907	US$1,875

Summary of Financial Information
Gross book value⁽¹⁾	$4,571,631	$4,095,931
Indebtedness⁽¹⁾	$1,816,598	$1,583,311

Indebtedness to gross book value ratio⁽¹⁾	39.7 %	38.7 %
Weighted average mortgage interest rate	3.88 %	3.72 %
Weighted average term to maturity on mortgages payable (years)	5.2	4.9

(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 a substitute for related financial information prepared in accordance with IFRS.

	Three months ended		Year ended
	December 31		December 31
(In thousands of dollars, except per Unit amounts)	2024	2023	2024	2023
Summary of Financial Information
Revenue from real estate properties	$87,888	$85,000	$344,188	$331,620
NOI	$54,153	$55,020	$181,420	$180,240
Proportionate NOI⁽¹⁾	$45,554	$47,675	$181,211	$178,756
Same Property Proportionate NOI⁽¹⁾	$45,554	$47,675	$176,852	$175,327
NOI margin – IFRS	61.6 %	64.7 %	52.7 %	54.4 %
NOI margin – Proportionate⁽¹⁾	52.2 %	56.4 %	53.0 %	54.2 %
Net income	$42,878	$24,366	$99,396	$185,281

FFO – basic⁽¹⁾	$22,788	$24,341	$88,859	$91,942
FFO – diluted⁽¹⁾	$23,628	$25,188	$93,219	$95,550
FFO per Unit – basic⁽¹⁾	$0.42	$0.44	$1.65	$1.65
FFO per Unit – diluted⁽¹⁾	$0.42	$0.44	$1.64	$1.63
Distributions per Unit	$0.18833	$0.18334	$0.74336	$0.72334
FFO payout ratio⁽¹⁾	44.3 %	41.4 %	45.0 %	43.8 %
Weighted average number of Units outstanding (in thousands):
Basic	53,649	54,991	54,387	55,662
Diluted	55,968	57,310	56,706	58,501

(1)

For the three months ended December 31, 2024, NOI from the REIT's properties decreased by $0.8 million (or 1.6%) to $54.2 million, compared to $55.0 million in 2023. The decrease in NOI is due to an increase in Canada of $0.8 million (or 4.9%), a decrease in the U.S. of US$1.5 million (or 5.4%), and the change in foreign exchange rate which decreased NOI by $0.1 million.

For the three months ended December 31, 2024, Proportionate NOI from the REIT's properties decreased by $2.1 million (or 4.4%) to $45.6 million, compared to $47.7 million in 2023. The decrease in Proportionate NOI is due to an increase in Canada of $0.8 million (or 4.9%), a decrease in the U.S. of US$2.7 million (or 11.7%), and the change in foreign exchange rate which increased Proportionate NOI by $0.2 million, due to the following factors:

In Canada, higher gross rental revenue (5.8%) resulting from an increase in AMR, net of higher vacancy, was partially offset by an increase in operating expenses of $0.2 million (or 2.2%), primarily from higher operating costs, net of a decrease in utilities.
In the U.S., an increase in operating expenses of US$2.8 million (or 14.6%), partially offset by an increase in revenue of US$0.1 million (or 0.1%) from higher gross rental revenue (1.7%) resulting from an increase in AMR, net of higher vacancy. The increase in operating costs is primarily due to higher realty taxes of US$2.0 million (or 50.8%) from an increase in assessed market value at certain properties, including properties located in Chicago that entered a new triennial property tax assessment cycle during 2024 as well as a favorable realty tax outcome recorded in the fourth quarter of 2023 on final tax bills received amounting to US$0.5 million.

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 year ended December 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 Adjustment

For the three months ended

Proportionate

Proportionate

December 31

NCI

Equity

Basis

NCI

Equity

Basis

(In thousands of dollars)

IFRS

Share

Interest

IFRIC 21

(Non-GAAP)

IFRS

Interest

IFRIC 21

(Non-GAAP)

Revenue from properties

$87,888

($4,733)

$4,085

$—

$87,240

$85,000

($4,453)

$4,045

$—

$84,592

Property operating expenses

33,735

(1,680)

1,171

8,460

41,686

29,980

(1,266)

343

7,860

36,917

NOI

$54,153

($3,053)

$2,914

($8,460)

$45,554

$55,020

($3,187)

$3,702

($7,860)

$47,675

NOI Margin

61.6 %

52.2 %

64.7 %

56.4 %

				2024					2023
	Non-GAAP Adjustments				Non-GAAP Adjustments
For the year ended				Proportionate					Proportionate
December 31		NCI	Equity	Basis		NCI	Equity		Basis
(In thousands of dollars)	IFRS	Share	Interest	(Non-GAAP)	IFRS	Share	Interest	IFRIC 21	(Non-GAAP)
Revenue from properties
Same Property	$334,414	($18,142)	$15,929	$332,201	$324,407	($17,361)	$15,551	$—	$322,597
Acquisition	9,774	—	—	9,774	7,213	—	—	—	7,213
Total revenue from properties	344,188	(18,142)	15,929	341,975	331,620	(17,361)	15,551	—	329,810
Property operating expenses
Same Property	157,353	(9,067)	7,063	155,349	148,645	(7,857)	6,482	—	147,270
Acquisition	5,415	—	—	5,415	2,735	—	—	1,049	3,784
Total property operating expenses	162,768	(9,067)	7,063	160,764	151,380	(7,857)	6,482	1,049	151,054
NOI
Same Property	177,061	(9,075)	8,866	176,852	175,762	(9,504)	9,069	—	175,327
Acquisition	4,359	—	—	4,359	4,478	—	—	(1,049)	3,429
Total NOI	$181,420	($9,075)	$8,866	$181,211	$180,240	($9,504)	$9,069	(1,049)	$178,756
NOI Margin	52.7 %			53.0 %	54.4 %				54.2 %

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:

	Three months ended December 31		Year ended December 31
(In thousands of dollars, except per Unit amounts)	2024	2023	2024	2023
Net income for the period attributable to Unitholders	$48,602	$25,123	$101,858	$176,336
Add/(deduct):
Realty taxes accounted for under IFRIC 21	(8,460)	(7,860)	—	(1,049)
Fair value gain on conversion option on convertible debentures	(1,649)	(24)	(770)	(2,104)
Distributions on Class B LP Units recorded as interest expense	3,244	3,158	12,802	12,458
Foreign exchange loss	7	8	565	22
Fair value loss (gain) on real estate properties, net	28,093	18,535	(70,530)	(80,179)
Non-controlling interests' share of fair value gain (loss) on real estate properties	(7,650)	(2,627)	(6,854)	4,213
Fair value loss (gain) on Class B LP Units	(36,513)	(1,378)	40,991	(24,629)
Deferred income tax expense (recovery)	(2,886)	(10,594)	11,797	6,874
FFO – basic	$22,788	$24,341	$89,859	$91,942
Interest expense on convertible debentures	840	847	3,360	3,608
FFO – diluted	$23,628	$25,188	$93,219	$95,550
FFO per Unit – basic	$0.42	$0.44	$1.65	$1.65
FFO per Unit – diluted	$0.42	$0.44	$1.64	$1.63

Weighted average number of Units outstanding (in thousands):
Basic	53,649	54,991	54,387	55,662
Diluted	55,968	57,310	56,706	58,501

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 December 31
(In thousands of dollars)	2024	2023
Total Assets / Gross book value	$4,571,631	$4,095,931
Mortgage payable	$1,721,080	$1,495,362
Add: Deferred financing costs	20,162	13,628
Mark-to-market adjustment	1,744	2,262
	1,742,986	1,511,252
Convertible debentures, face value	56,000	56,000
Lease liabilities	17,612	16,059
Indebtedness	$1,816,598	$1,583,311
Indebtedness / Gross book value	39.7 %	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
The REIT entered into a binding commitment letter for the CMHC-insured refinancing of a multi-suite residential property located in Kitchener, Ontario, providing gross proceeds of up to $79.4 million for a term of 10 years. The maturing mortgage amounts to $30.8 million and has an interest rate of 2.25%. The REIT expects to close the refinancing during the first quarter of 2025.

The REIT's audited consolidated financial statements for the years ended December 31, 2024, and 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.sedarplus.ca.

Conference Call Details
Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday, February 13, 2025 at 3:00 p.m. (ET) to discuss the financial results for the years ended December 31, 2024 and 2023. To participate in the conference call, please dial 1-437-900-0527 or 1-888-510-2154. Please quote conference ID 90017.

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 February 11, 2025) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $4.3 billion at December 31, 2024. For more information, visit the REIT's website at www.morguard.com.