Earnings Call: Q1 2021

Apr 29, 2021

Earnings release

Afternoon, ladies and gentlemen, and welcome to the Morgant North American Residential REIT First Quarter 2021 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, April 29, 2021. I would now like to turn the conference over to Mr. Ray Sahi. Please go ahead. Thank you. Thank you very much. Chris, I'm going to pass it on to you. You're going to introduce everybody. Okay. Thank you, Ray. And with me as well is Beverly Flynn, Paul Hello, Angela Sadi, Patrick Stewart and John Celano. So as is customary, I'll provide comments On the REIT's financial position and performance, in terms of our financial position, the REIT completed the Q1 of 2021 with total assets $19,800,000 of cash on hand and $96,100,000 available under its $100,000,000 revolving credit facility with Morvard Corporation. The REIT completed the 1st quarter with $1,200,000,000 of long term debt obligations. And as at March 31, 2021, The REIT's overall weighted average terms of maturity was 4.6 years, a decrease from 4.8 years at December 31, And having a weighted average interest rate of 3.45 percent. The REIT's debt to gross book value ratio improved to 42.1% as at March 30 2021 from 42.8 percent at December 31, 2020. The REIT's IFRS net asset value at March 31, 2021 of reflects the compelling entry point for investors. Turning to the statement of income. Net income was $27,400,000 for 3 months ended March 31, 2021 compared to $97,200,000 over the same period in 2020. The $69,800,000 decrease in net income was primarily due to a decrease in the fair value gain on the Class B LP unit of $81,300,000 due to a fair value gain of $6,500,000 recorded during Q1 2021 compared to a fair value gain of $87,800,000 recorded in Q1 2020 and a decrease in foreign exchange gain of $1,800,000 which was also partially offset by a higher fair value gain on real estate properties of 17,000,000 IFRS net operating income of $15,200,000 for the 3 months ended March 31, 2021, a decrease of $2,100,000 or 12.2 percent compared to 2020. And on a same property proportionate NOI in Canada decreased by $1,100,000 or 7.6 percent. NOI in the U. S. Decreased by $0,800,000 or 5.2 And the change in foreign exchange decreased NOI by $1,500,000 The decrease in NOI in Canada and the U. S. Was impacted by higher vacancy. Interest expense increased by $2,000,000 for the 3 months ended March 31, 2021 compared to 2020, primarily due to a non decrease in the fair value gain on convertible debenture conversion option. The REIT's 1st quarter Performance has translated into basic FFO of $15,600,000 a decrease of $2,500,000 or 13.7% when Compared to 2020. And on a per unit basis, FFO was $0.28 per unit for the 3 months ended March 31, 2021, a decrease of 0 point Due to a decrease in NOI primarily from increased vacancy and was partially offset by a decrease in trust expense had a $0.02 per unit negative impact As well, the change in foreign exchange rate had a $0.02 per unit negative impact. The REIT's FFO payout ratio of 63 For the 3 months ended March 31, 2021, a very conservative level, which allows for significant cash retention. Operationally, the REIT's average monthly rents in Canada increased to $1509 or a 4.3% increase compared to 2020, reflecting the quality of our Canadian portfolio. During the quarter, the Canadian portfolio turned over 2.1% of total suites in Canada and achieved 15.7 percent AMR growth on fleet turnover. While in the U. S. Same property AMR increased by 0.7% compared to 2020, having an average monthly rent of US1429 dollars at the end of March 2021. The REIT's occupancy in Canada finished the Q1 of 2021 at 93.6 percent compared to 98.8 percent a year earlier. Occupancy decreased in Canada due to Continued lower leasing traffic, lower immigration levels as well as 2 properties impacted by university closures. Same property occupancy in the U. S. 95.1 percent at March 31, 2021 was slightly lower compared to 95.4% at March 31, 2020. During the Q1 of 2021, the REIT's total CapEx amounted to $5,700,000 that included exterior building and revenue enhancing infuite improvements. Overall, in order to preserve liquidity, the REIT scaled back most of its revenue enhancing CapEx and continued to focus on maintenance CapEx. And as of April 27, 2021, the REIT collected 98.4 percent of 1st quarter rental revenue and Approximately 95.4 percent of April 2021 rental revenue, which is materially in line with historical rates. I'll now turn the call back over to the moderator, who will open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer It will be pulled in the order they are received. Your first question comes from Matt Logan with RBC Capital Markets. Matt, please go ahead. Good afternoon. Just wondering if you could provide a little bit of Terry, on how leasing is progressing so far into April and how the momentum is building through the year? Thanks, Matt. I'll turn it over to Angela first to speak to the Canadian portfolio. Yes. So in Canada, even despite the stay at home order, we Our finding that with the spring market, historically, this is the timing of the most of the demand starting. And in the last few weeks, we have seen much more Leading traffic and prospects signing leases for the summer and even universities, it seems like there are partial openings Expected or anticipated for fall, so people are signing leases for July August. So overall, we're seeing some positive growth there. Thanks. And John, do you want to add anything in the U. S? Sure. For the U. S, I would say our leasing season started Much earlier than typical. We've had some really good activity In all of our markets, actually over the last month and a half or so, and We are now already at above our occupancy levels pre pandemic. So, it's very good and it's very strong And improving every day right now in the U. S. And John, would it be fair to say that the incentives are declining as that DC interest is picking up? Yes, definitely. We still have well, as an example, we're really only Using incentives in Chicago and D. C. And as an example, the Chicago market, I think I spoke about Marquis on the last call and our assets there. The Chicago market has really exploded with activity. We were in the mid-70s in occupancy in Chicago, and the Marquis today is 92% 95% leased. So in those markets, we are still using some incentives Because there is still a large supply of new product coming in Chicago specifically, but it is at a much reduced pace And we have nothing left to lease. So, from that perspective, we're doing really well. Great news. And maybe this is a question for Chris. Could you remind us how you're calculating the incentives in terms of how they flow through the P and L? Are those just being expensed or amortized in the income statement? They're amortized over the term of the lease typically 12 months. So we have Yes, sorry, go ahead, Matt. Go ahead, Chris. I was just saying the cash flow statement has the cash incentive listed And then including our financials, there's a line in our cash flow support that speaks to the amortized portion. Appreciate that. And last one for me, just on the lease up for Josephine in New Orleans. Can you give us a sense for where that stands today? Sure. It was definitely slow in the beginning. I think we reported that we were 12% occupied at the quarter And our goal was 28%. So we were only halfway there. We're already at 21% occupied and 28% leased a month later. So the momentum is definitely improving and we expect that to continue to improve in New Orleans. We have a lot of university traffic from Loyola and Tulane Universities and that's absolutely picking up as well. Your next question comes from Lorne Kalmar with TD Securities. Lorne, please go ahead. Thanks. Good afternoon, everyone. Maybe just following on Matt's question. In the U. S, obviously, things are opening. It looks like there's a return to normalcy. And clearly, you guys are posting some good numbers and great to hear that you're above Do you think we get back or maybe let me rephrase, when do you think we get back to seeing positive same property NOI growth in the U. S. Portfolio? We're very we're in a great place right now. I expect That our trends will continue through this next quarter. Obviously, I cannot predict the future nor want to even pretend to with the pandemic, but Things are very strong. Our expenses, we've been able to hold pretty well, but we've also had a lot of activity. So We are going to see an increase in move in and make ready expenses, but That is because we're filling up very quickly. Yes. So presumably that would get partially offset by the growth in revenue, right? Right. Well, we actually held rents, trying to do the right thing during the pandemic, but we have released those controls and we are definitely pushing rents with our software every day. Okay. And with things sort of starting to reopen in the States, I don't see there's much bad debts in Canada. The expectation, they're not material now, but that they'll continue to trend downwards? Yes. I think we're going to have A group of folks that have been deferring rent and Working with the eviction moratorium and simply just holding off on paying rent, we've seen When areas for evictions open up, folks react quickly and pay off a lot of their debts Almost immediately. So we think a big chunk of what's out there is actually going to be paid off immediately. And quite frankly, the remaining amount is immaterial. Okay. And like In the States, what would you say are the strongest markets? Are those the ones that have kind of started to fully reopen the Florida's of the world and whatnot? Florida has been strong throughout the pandemic. They're all performing very well at this Point, but we saw the most I mean, you can see where the most rent growth is and that's where we've been the strongest. But certainly Florida, Texas and even Georgia have All performed. Okay. And then maybe just lastly for me, with things appearing to stabilize and then a little bit more visibility, Do you guys think you'll start looking at acquisitions? I know north of the border is a little tough, but in the U. S? Well, that's the way it's We are all looking at acquisitions and we'll see what we look in U. S. Mostly. We looked at some in Canada, but not much. So we're looking somewhat market in the U. S, including possible Okay. Are there any new markets you guys would like to get into or Well, that depends on opportunity. We aren't looking at new markets, but whether Thank you. We have a following question from Yash Sankpal with Laurentian Bank. Yash, please go ahead. Good afternoon. Hi, guys. Just want to understand the Canadian market a little bit, your Canadian portfolio a little bit better. I see that your rent growth on turnover is quite impressive. It's a small base, but Still 15% growth 16% is not like small number, but you saw a sequential drop in occupancy. So just want to understand what is happening? Who do you who are you losing your tenants to? And who are The new guys coming in, like any color there would be great. Sure. So there's actually So I'm positive it's been honest because we're actually losing people that are below market. They're actually moving into new homes in the Mississauga portfolio. And so those units are coming to market at this point. So it's and we do have a little bit more turnover as compared to last year, but not significant. And then so obviously there is growth from just that Transition from old rent to current. And then we are still applying for above guideline applications, although there's a 0 Guideline increase, we do have those ongoing as well. But we're holding our rents, so at pre COVID Market rates right now, and so that's why we're okay with the temporary vacancy in the portfolio. And based on what kind of leasing happening right now, where do you think you will be by End of September. That's really hard to predict. I think it's going to be we're hoping for a comparable In fact, as in U. S, like we're hoping for a bounce back once the vaccine gets rolled out. So I'm hoping by September we'll be back to normal. But the target is Okay. Okay. And just Ray, you mentioned about development projects. Are these will these projects be in the U. S? Or are you Any Canadian opportunities? We are looking at both sides, mostly in U. S. There's tough to make numbers work these days in GDX. The cost because of the Condo market now that's a little bit tough to make the numbers work on our new project. Okay. That's it for me. Thank you. Thank you. Thank you. Are you ready to tell it? Yes. Thank you very much. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you. Thank you. Bye now. Bye.