Morguard North American Residential Real Estate Investment Trust (MNARF) Q4 2022 Earnings Call Transcript

Morguard North American Residential Real Estate Investment Trust (OTC:MNARF) Q4 2022 Earnings Conference Call February 16, 2023 3:00 PM ET

Company Participants

Paul Miatello - Senior Vice President

Angela Sahi - Executive Vice President, Residential, Office and Industrial

John Talano - SVP, U.S. Operations

Beverley Flynn - Senior Vice President, General Counsel and Secretary

Chris Newman - Chief Financial Officer

Conference Call Participants

Jonathan Kelcher - TD Securities

David Ramsay - Calrossie Investment Management

Jimmy Shan - RBC Capital Markets

Operator

Good afternoon, ladies and gentlemen, and invited to nan Fourth Quarter for nan Year Ended December 31, 2022 Conference Call. At this time, each lines are successful a listen-only mode. Following nan presentation, we will behaviour a question-and-answer session. [Operator Instructions]. This telephone is being recorded connected Thursday, February 16, 2023.

I'd now for illustration to move nan convention complete to Paul Miatello. Please spell ahead.

Paul Miatello

Thank you very much, and bully afternoon, everybody. And acknowledgment for joining america connected our Q4 results convention call. I'll conscionable do a speedy preamble connected domiciled telephone for everybody. This is Paul Miatello, SVP of nan REIT speaking. With me, I person Angela Sahi, SVP successful Canada; John Talano, SVP of our U.S. Operations; Beverley Flynn, SVP General Counsel; and I besides person Chris Newman, our CFO.

So arsenic usual, I'll move it complete to Chris. Chris is chomping astatine nan spot to springiness you a queue for update. It was different bully and very beardown 4th for nan REIT. So conscionable pinch that speedy introduction, I'll move it complete to Chris.

Chris Newman

Okay. Thank you, Paul. As is customary, I'll supply immoderate comments connected nan REIT's financial position and performance. In position of our financial position, nan REIT completed nan 4th fourth of 2022 pinch full assets amounting to $3.9 cardinal higher compared to $3.5 cardinal at December 31, 2021, resulting from a adjacent worth summation connected nan REIT's income-producing properties, $208 cardinal and a higher overseas speech translation.

The adjacent worth summation is simply a consequence of an summation successful underwritten NOI astatine some nan U.S. and Canadian properties, supported by beardown rent growth, partially offset by a headdress complaint summation connected nan Canadian portfolio. As good to note, during nan 4th quarter, nan REIT posted a adjacent worth nonaccomplishment of $203 million, which partially offset nan year-to-date adjacent worth gain, and it was owed wholly to headdress complaint summation astatine astir of nan Canadian and U.S. properties.

During nan 4th quarter, nan REIT completed nan pursuing transactions connected October 6. The REIT sold its spot located successful Coconut Creek Florida, comprising 340 suites for nett proceeds of $70.6 cardinal aft closing costs and nan repayment of owe payable secured by nan property.

And consequent to year-end, nan REIT acquired for Morguard Corporation, nan remaining 50% liking successful Finastra astatine Rockville Town Square, comprising 492 residential suites for a gross acquisition value of $71.5 million, excluding closing costs and nan REIT assumed astatine nan mortgages payable of $34 million.

The REIT disposition of 3 assets this twelvemonth supports management's strategy to dispose of assets wherever values are benefiting from beardown marketplace request and to attraction connected opportunities to get properties located successful municipality centers and awesome suburban markets successful Canada and nan United States.

To add, nan REIT utilized nan taxation deferred strategy nether Internal Revenue Code Section 1031 successful relationship pinch its first 2 U.S. spot dispositions and is pursuing a 1031 speech connected nan caller disposition completed during nan 4th quarter. Under 1031 exchange, taxable to definite conditions, REIT will beryllium capable to defer taxation payable upon nan acquisition of a replacement property.

The REIT vanished nan 4th fourth pinch $14.6 cardinal of rate connected hand, $62 cardinal from nett proceeds received from nan waste of Blue Isle during nan 4th fourth that is classified arsenic restricted rate connected nan equilibrium sheet, while nan REIT pursues nan replacement property, and has besides $80.7 cardinal beforehand to much of our corp nether its $100 cardinal revolving in installments facility, providing nan REIT pinch $180.7 cardinal disposable nether nan facility.

The REIT completed nan 4th fourth pinch $1.2 cardinal of semipermanent indebtedness obligations. On December 30, 2022, nan REIT completed nan refinancing of a spot located successful Cooper City, Florida astatine a floating liking complaint for a word of 5 years, providing further nett proceeds of $0.7 million.

And arsenic astatine December 31, 2022, nan REIT's wide weighted mean word to maturity was 4.9 years, decreased from 5 years astatine December 31, 2021. And nan weighted mean liking complaint accrued to 3.5% from 3.31% astatine December 31, 2021. The REIT's indebtedness to gross book worth ratio improved to 38% astatine December 31, 2022, down compared to 40.2% since December 31, 2021.

Turning to nan connection of income. Net income was $239.6 cardinal for nan twelvemonth ended December 31, 2022 compared to $245 cardinal successful 2021. The $5.4 cardinal alteration successful nett income was chiefly owed to a little adjacent worth summation connected existent property properties of $80.4 cardinal comparative to nan summation recorded during 2021, and was partially offset by a higher adjacent worth summation connected Class B LP units of $56.3 million, reflecting a alteration successful nan REIT portion value during nan year, and was besides offset by an summation successful NOI positive $21.7 million.

IFRS nett operating income was $151.2 cardinal for nan twelvemonth ended December 31, 2022, an summation of $21.7 cardinal aliases 16.8% compared to 2021. The alteration successful overseas speech complaint accrued NOI by $6.7 cardinal of nan wide $21.7 cardinal variance to past year.

On a same-property proportionate basis, NOI successful nan U.S. accrued by $11.1 cardinal aliases 19.4% arsenic an summation successful gross from AMR maturation and ancillary gross was partially offset by higher vacancy and an summation successful operating expenses.

NOI successful Canada accrued by $3.4 cardinal aliases 6.7%, chiefly owed to AMR maturation and little vacancies, partially offset by an summation successful operating expenses. And nan alteration successful overseas speech accrued NOI by $6.2 million.

Interest disbursal decreased by $2 cardinal for nan twelvemonth ended December 31, 2022, compared to 2021, chiefly owed to a nonaccomplishment connected nan taxation liability connected nan redemption of Class C LP units of $3.8 cardinal recorded successful 2021 arsenic good arsenic a higher non-cash adjacent worth summation connected nan convertible debentures conversion action of $2.4 million, partially offset by an summation successful liking connected mortgages of $3.9 million, chiefly resulting from further nett owe proceeds connected nan completion of nan refinancings during 2022 and during nan 4th fourth of 2021 arsenic good arsenic a nett summation from nan effect of acquisitions and dispositions passim nan year.

The REIT's 2022 capacity translated into basal FFO of $82.8 million, an summation of $18 cardinal aliases 27.8% erstwhile compared to 2021. And connected a per portion basis, FFO was a grounds precocious astatine $1.47 per portion for nan twelvemonth ended December 31, 2022, an summation of $0.32 compared to $1.15 per portion successful 2021.

The summation successful FFO per portion was owed to nan following: connected a same-property proportionate ground successful section currency, an summation successful NOI from AMR from higher AMR and little vacancy, partially offset by higher operating costs, an summation successful liking disbursal and spot expenses had a $0.15 per portion affirmative impact, of which a successful spot taxation appeals nett of consulting fees contributed $0.025 of that increase.

In addition, a alteration successful nan overseas speech complaint had a $0.09 per portion affirmative impact. Also an summation from nan publication of nan REIT's improvement property, which reached stabilization successful October 2021 astatine a $0.03 per portion affirmative impact. The nett effect of acquisitions and dispositions had a $0.01 per portion antagonistic impact, chiefly owed to nan timing of redeploying income proceeds towards acquisitions. And an summation successful different income chiefly from an summation successful liking income connected nan Morguard installation and liking income earned connected restricted rate held arsenic portion of a 1031 speech from disposition proceeds, had a $0.06 per portion affirmative impact.

The REIT's FFO payout ratio continued to diminution to 47.8% for nan twelvemonth ended December 31, 2022, a very blimpish level, which allows for important rate retention. In addition, arsenic antecedently announced, commencing successful November 2022, nan REIT accrued its yearly rate distribution by $0.02 to $0.72 per unit, an summation of 2.86%.

Operationally, nan REIT's mean monthly rent successful Canada accrued to $1,588 astatine December 31, 2022, a 3.5% summation compared to 2021, reflecting our -- nan value of our Canadian portfolio. And during nan year, nan Canadian portfolio turned complete 19% of full suites and achieved 13.7% AMR maturation connected suite turnover. While successful nan U.S., same-property AMR accrued by 13.1% compared to 2021, having an mean monthly rent of $1,737 astatine nan extremity of December 2022, arsenic nan REIT continued its beardown performance, benefiting from beardown marketplace fundamentals crossed galore regions.

The REIT's occupancy successful Canada vanished nan 4th fourth of 2022 astatine 98.6% compared to 93.6% astatine December 31, 2021. Overall, occupancy has accrued crossed nan portfolio arsenic leasing activity accrued to pre-pandemic levels arsenic economical conditions improved and arsenic group return to their normal routine. Same-property occupancy successful nan U.S. of 95.3% astatine December 31, 2022, was somewhat little compared to 96.2% astatine December 31, 2021, arsenic U.S. occupancy is still maintaining optimum levels.

During nan twelvemonth 2022, nan REIT's full CapEx amounted to $40.8 million. That included revenue-enhancing in-suite improvements, communal area and exterior building projects arsenic we proceed to guarantee that we support nan structural and wide information astatine our properties. And nan REIT collections of rental income during nan twelvemonth proceed to beryllium materially successful statement pinch humanities postulation rates.

At this time, I'd for illustration to move nan telephone backmost complete to nan moderator for immoderate questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we will now statesman nan question-and-answer session. [Operator Instructions]. Your first mobility comes from nan statement of Jonathan Kelcher from TD Securities. Please spell ahead.

Jonathan Kelcher

Thanks. Good afternoon. First question, conscionable connected nan your U.S. markets. You spot a batch of media talk connected marketplace rent maturation slowing successful galore of nan markets. Maybe springiness america immoderate colour connected what you're seeing successful your markets. And what you expect for marketplace rent maturation successful 2023?

Chris Newman

No problem. John Talano, do you mind responding to that question?

John Talano

Sure. Well, I would first opportunity that nan marketplace rent maturation are slowing, but that's because it's been truthful fierce successful each passim 2022. So for us, we are seeing immoderate seasonality maturation reductions successful places for illustration Chicago and Washington, D.C., wherever it's cold, tons of folks will proceed to move if location are occupation ends aliases thing for illustration that successful those regions, but location aren't arsenic galore folks to backfill astatine that point. So we mostly person ever seen a slowing astatine that time.

In our Southern markets, it's decidedly stronger. But I would opportunity we're returning to much normal levels of growth, but it's surely not negative. Our projection -- we didn't expect to beryllium wherever we were -- wherever we are now coming based connected our projections from past year. So we're doing very well.

Jonathan Kelcher

Okay. And past for this year, for illustration inflation-type maturation a small spot below, a small spot above, really are you reasoning of that?

John Talano

Yes, we're successful ostentation this year. That's -- I can't foretell that stuff, obviously, but I would opportunity our maturation is still good, and we're surely keeping up pinch inflation.

Jonathan Kelcher

Okay. And past conscionable secondly, connected nan 1031 costs that you request to invest. What markets are you looking at? And what benignant of headdress complaint should we deliberation astir there?

Paul Miatello

Jon, it's Paul. We're mostly sticking to nan existing footprint. So not going excessively acold afield extracurricular of that. So beautiful -- astir apt a beautiful safe assumption, we would extremity up doing thing successful nan existing submarkets. In position of headdress rate, it varies, obviously, depending connected nan market, but could beryllium 4.25 to 4.75 possibly 5, but benignant of location successful that range. But again, depending connected wherever we picked.

Jonathan Kelcher

Okay. Are you seeing -- are location for illustration a batch of opportunities? Or it's each worldly I'm hearing, reference is that nan marketplace has slowed down rather a spot successful benignant of Q4, Q1?

Paul Miatello

Yes, it's decidedly slowed down, but there's still woody travel location for sure, still listing. So that's nan awesome point astir nan U.S., right? There's ever immoderate woody travel there. So yes, it's curtailed. But yes, we're not having a difficult clip uncovering opportunities to look at.

Jonathan Kelcher

Okay, thanks. I'll move it back.

Operator

Thank you. And your adjacent mobility comes from nan statement of David Ramsay from Calrossie Investment Management. Please spell ahead.

David Ramsay

Hi, your dividend complaint summation was comparatively small, I thought, fixed nan debased payout ratio, nan beardown NOI growth, nan wide ostentation rate, tin you talk a spot astir your accuracy connected raising nan dividend?

ChrisNewman

Yes. I mean, generally, our history is that it's been beautiful conservative. So I mean based connected that history, you astir apt shouldn't beryllium excessively amazed that we kept it comparatively conservative. So we will, arsenic an organization, we'll proceed to benignant of err connected that broadside of conservatism. And to John's point, he made a fewer minutes agone astir rent growth. Each year, look distribution increases are looked astatine separately.

Obviously, it was a very beardown twelvemonth successful 2022, suffice it to say. And we -- and certainly, arsenic John said, we're expecting rent maturation again, but surely not apt not astatine nan level that we saw successful '22. So obviously, there's room to summation nan distribution further and still support a beautiful blimpish payout ratio. But overall, nan thesis of nan statement is to support it conservative.

David Ramsay

Okay, convey you.

Operator

Thank you. [Operator Instructions] And your adjacent mobility comes from nan statement of Jimmy Shan from RBC Capital Markets. Please spell ahead.

JimmyShan

Thanks. Just a mates of speedy ones. So 1 is connected nan convertible debenture. I was wondering wherever -- really you're readying to woody pinch that one? And past second, I conscionable wondered if you could conscionable make immoderate wide comments connected your GTA assets. Termed looks for illustration it's beautiful strong. So conscionable immoderate absorbing study you make pinch that portfolio would beryllium great.

Chris Newman

Okay. So I'll do nan converts mobility and past I'll move it complete to Angela for nan GTA plus question. But connected nan converts, Yes, I mean, obviously, we're analyzing our options correct now. There's a adjacent spot of rate successful nan entity now. And you'd spot from our disclosures, we've sewage a mates of refinancings coming up successful nan adjacent for illustration 4 to six months aliases moreover soon aliases 2 to 3 months to arsenic acold arsenic six months out, that will output immoderate financing proceeds to nan REIT.

So yes, we're looking astatine nan options. Obviously, if we were to do a caller person successful this liking complaint environment, it'd beryllium astatine a precocious coupon than what's maturing. So that we're evidently playing disconnected nan readiness of rate against what benignant of coupon we want to fastener into. So everything is being assessed arsenic we go. Jimmy, obviously, that person matures connected March 31. So we're looking astatine it existent clip correct now, but that's astir arsenic overmuch arsenic I tin opportunity correct now.

Angela Sahi

Sorry, do you mind repeating nan GTA question?

Jimmy Shan

No, I conscionable wondered if you could conscionable remark connected what you're seeing successful nan GTA because it looks for illustration nan lease turnover spreads successful nan 4th was beautiful strong. And truthful immoderate colour you could adhd beryllium appreciated.

Angela Sahi

The turnover uplift, you mean aliases conscionable yes.

Jimmy Shan

Yes. The turnover uplift. Yes.

Angela Sahi

Yes, exactly, yes. So we are seeing decidedly a very affirmative rent maturation connected turnover. We had astir 20 -- conscionable nether 20% for nan 4th for past year, and we're really astatine astir 22.7% for January. So to conscionable springiness you an idea, Mississauga is astatine 23% rent maturation and 41% successful nan Thorncliffe Park area. So it's beautiful significant. Obviously, fixed nan lodging shortage, nan summation successful immigration. So turnover complaint is still low. It's little than past year, but decidedly seeing momentum connected nan rent maturation and turnover. I haven't seen numbers for illustration this actually. And this is besides we're astatine -- nan smaller units astatine $3.40 a quadrate ft for immoderate of nan units, $3.26 definitely, we're seeing a batch of -- northbound of $3, which is astonishing and Thorncliffe Park arsenic good $2.50 even. So conscionable to springiness you immoderate idea.

Jimmy Shan

Okay. And sorry, did you opportunity -- which 1 was nan 40% lift, a 40%?

Angela Sahi

Thorncliffe Park.

Jimmy Shan

Thorncliffe Park, okay. All right. And past nan 22.7% successful January, that was for nan entire?

Angela Sahi

The portfolio, that's for nan portfolio.

Chris Newman

And Jimmy, sorry, nan Thorncliffe is high, but nan number of turnovers are very low. So it gets each weighted down connected that average.

Angela Sahi

Yes.

Jimmy Shan

Great, okay. Okay, great. Thank you.

Operator

Thank you. And your adjacent mobility comes from nan statement of David Ramsay from Calrossie Investment Management. Please spell ahead.

David Ramsay

Well, thanks. Just a follow-up. I was noting successful a TD report, I publication coming that your discount to nett plus worth is astatine nan ample extremity of nan humanities range. Do you person immoderate thoughts connected why that is nan case? And do you person immoderate thoughts connected really you mightiness shrink that discount, for instance, stock buybacks aliases further to my erstwhile question, a higher payout ratio. Anyways, complete to you.

Chris Newman

Yes. On nan stock buyback, we person been utilizing nan NCIB into 2023. So we purchased 50 -- a small complete 56,000 units, astir $1 cardinal worth. So we are benignant of recognizing a small spot of worth spread there. So we're doing -- we've started that program. Paul, thing you want to adhd on, for illustration nan accepted building of nan REIT and nan -- overall, it's -- I don't know, it's -- sorry, Paul, do you want to adhd anything?

Paul Miatello

Yes, there's a humanities discount to NAV is larger than our peers has. It's been location consistently, right? I'm judge you understand that and admit that. And immoderate of that has to do pinch a smaller trading quote and immoderate of that has to do pinch nan beingness of a awesome shareholder aliases a awesome unitholder successful this case. And yes, truthful I deliberation we're mostly for those reasons, they're somewhat structural.

And yes, truthful utilizing nan NCIB and -- yes, overall, I deliberation we're unduly punished successful superior markets. We should beryllium trading amended than we are. And nan results for nan -- for 2022 and particularly nan past mates of quarters benignant of underscore that.

Chris Newman

And further, we unlocked immoderate of nan worth successful our assets pinch nan dispositions arsenic well. So much truthful proofing retired nan equilibrium expanse itself.

David Ramsay

Great, okay. Thank you.

Operator

Thank you. There are nary further questions astatine this time. Please proceed.

Chris Newman

Okay. Thank you again, everybody, for joining america and we look guardant to speaking to you connected our adjacent convention call. Thank you.

Operator

Thank you. That does reason our convention for today. Thank you each for participating. You whitethorn now disconnect.