Good afternoon, ladies and gentlemen, and welcome to Morguard North American Residential Real Estate Investment Trust first quarter results conference call. At this time, all lines are listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 2nd, 2019. I would now like to turn the conference over to Paul Miatello. Please go ahead.
Thank you very much, thank you everybody for joining us on our Q1 2019 conference call for Morguard North American Residential REIT. With me today, I have Chris Newman, Chief Financial Officer, Angela Sahi, Senior Vice President, Sanjay Rateja, Vice President Operations for Canada. John Talano is on the phone, our Vice President of U.S. Operations, and Rai Sahi, our Chief Executive Officer. With that, I will turn this call over to Chris Newman to give us a bit of a results update, we'll open the floor up for questions. Okay, Chris.
Thank you, Paul. As is customary, I'll provide comments on the REIT's financial position and performance, open up the floor for questions. In terms of our financial position, the REIT completed the first quarter of 2019 with total assets of CAD 93 billion, compared to CAD 3 billion at December 31st, 2018. During and subsequent to the first quarter, the REIT sold five properties located in Louisiana, comprising 843 suites for net proceeds of CAD 27.5 million after the assumption of repayment of mortgages payable. The disposition of the five Louisiana properties, having an average age of 40 years, followed the sale of the REIT's Alabama properties in July 2017 and is consistent with management's strategy to dispose of non-core assets and to focus on opportunities to acquire properties located in urban centers and major suburban markets in Canada and the U.S.
The REIT finished the first quarter of 2019 with CAD 23 million of cash on hand and CAD 1.6 million owing to Morguard Corporation under its revolving credit facility. The REIT has CAD 100 million credit facility, which can be drawn in either Canadian or U.S. dollars, and which the REIT can use for acquisitions and general corporate purposes. The REIT completed the first quarter of 2019 with CAD 1.1 billion of long-term debt obligations. There was no refinancing activity during the first quarter. As at March 31st, 2019, the REIT's overall weighted average terms of maturity was 5.6 years, a decrease from 5.8 years at December 31st, 2018. The REIT's weighted average interest rate also decreased to 3.48% compared to 3.49% over the same period. The REIT continues to make progress in reducing its overall leverage.
The REIT's debt to gross book value ratio improved to 46.5% at March 31st, 2019, from 47.9% at December 31st, 2018. MRG.UN had an IFRS net asset value of CAD 25.87 per unit as of March 31st, 2019, compared to the current market price of about CAD 17.50, still reflecting a compelling entry point for investors. Turning to the income statement. Net income of CAD 3.7 million for the three months ended March 31st, 2019, decreased by CAD 76.7 million compared to CAD 80.4 million in 2018. The decrease was primarily due to an increase in interest expense and non-cash changes, mainly from a lower fair value gain on real estate properties, a higher fair value loss on the Class B LP units, and a higher foreign exchange loss, partially offset by a decrease in deferred income taxes compared to 2018.
NOI of CAD 16.8 million for the three months ended March 31st, 2019, decreased by CAD 0.3 million or 1.6% compared to 2018. Same property proportionate NOI in Canada increased by CAD 0.7 million or 5.9%, and in the U.S. increased by $0.4 million or 3.1% compared to 2018. Interest expense increased by CAD 2.9 million for the three months ended March 31st, 2019, compared to 2018. Excluding non-cash fair value adjustments, interest expense increased by CAD 0.8 million primarily due to the loss on extinguishment of mortgages payable in connection with the disposal of four Louisiana properties of CAD 0.5 million. The REIT's first quarter performance has translated into basic FFO of CAD 15.2 million, an increase of CAD 0.5 million or 3.4% compared to 2018.
On a per-unit basis, FFO was CAD 0.30 per unit for the three months ended March 31st, 2019, an increase of CAD 0.01 or 3.4% compared to CAD 0.29 in 2018. The loss on extinguishment of mortgages payable had a CAD 0.01 negative impact, and the change in the foreign exchange rate had a CAD 0.01 positive impact. The REIT's FFO payout ratio was 56.7% for the three months ended March 31st, 2019, a very conservative level, which allows for significant cash retention. Operationally, the REIT had a successful quarter with AMR in Canada increasing to CAD 1,383, reflecting the quality of our Canadian portfolio, and translates into an overall 3.5% increase in rent levels over 2018. During the quarter, the Canadian portfolio turned over 2.8% of total suites in Canada and achieved 15.4% AMR growth on suites turned over.
While in the U.S., same property AMR increased by 3.1%, having an average monthly rent of $1,366 at the end of the first quarter of 2019, compared to $1,267 at the end of Q1 2018.
The REIT continues to report strong occupancy, with Canada finishing the first quarter of 2019 at 99.3%, compared to 99.2% a year earlier. Same property occupancy in the U.S. continued to improve over last year. Occupancy increased to 95.3%, from 92.6% in 2018. I'll now turn the call back over to the moderator, who will open up the floor for questions.
Thank you. Ladies and gentlemen, should you have a question, please press star followed by one on your touch-tone phone. If you're using a speakerphone, please lift your handset before pressing any keys. One moment, please, for your first question. Your first question is from Lorne Kalmar from TD. Lorne, please go ahead.
Hey, thanks. Good afternoon.
Hi.
Just quickly on the dispositions, were they in line with IFRS?
Yes, they were in line with IFRS. Yeah.
Okay. On the New Orleans development, what yield are you guys targeting on that?
We're early in that redevelopment. We'd be targeting something north of 7.5. Again, we're still early in terms of peeling back walls and things like that. The target's about 7.5.
Okay, fair enough. I guess you never know what you're going to find behind the walls. I guess now with the U.S. portfolio largely stabilized at over 95% occupied, are you guys looking to resume acquisition activity in the U.S. at least?
Well, this is Rai Sahi. Well, we'd obviously always looking at acquisition. We're watching to see what happens. There's nothing that we are in position to report at this stage. We are looking mostly in the U.S. We always look for in Canada, but there's nothing ever available over in Canada, that's the question.
Fair enough. Just lastly, again, I guess with now the occupancy in the U.S. stabilized, do you guys think you can start pushing rent a little more aggressively?
John Talano?
John Talano.
John.
John Talano here. I would say absolutely. We already have. We were really focused on occupancy using our revenue management system over the winter to really push that up. We're in a great place now, and the intent is to push rents as we're going into spring for sure.
Great. That's all for me. I'll turn it back.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. Your next question is from Yash Sankpal from Laurentian Bank. Yash, please go ahead.
Thank you. Good afternoon.
Hi, Yash.
Just on your U.S. portfolio, where do you expect your U.S. occupancy to be by year-end?
John, do you want to answer that?
Sure. We're at about our optimum levels today, so we're shooting for the 95%, 96% range. We do have a lot of turnover over the summer months, but again, that's usually our opportunity to push some rents as well. We're about at our optimum levels.
All right. Your margin in the U.S. portfolio was down year-over-year. I was wondering what would the margin be if those one-time items were not there, and how should we model your margins going forward?
John, do you want to answer that?
Yes, I'll take that too. I would say that we had some significant acquisitions with Coast and Fenestra that when you look back, were not fully stabilized at that point in 2018. We were short on staff and had other expenses that actually were lower in general at that point. Our expenses in Q1 2019 were actually pushed up a little bit with some utilities from the polar vortex in our northern cities as well. I believe they will stabilize a little bit and move a point, a point and a half, but they're not going to move too much.
Got it. Okay. You sold part of your Louisiana portfolio. Are you planning to sell the entire thing there, like the remaining three properties?
No. As far as the rest, we've only got a couple of properties left in Louisiana, and we're happy with what we have now. That part of the disposition program is done.
How do you plan to replenish that income? Is there anything imminent that you guys plan to do or
Like Rai said a couple of minutes ago, we're looking, we're kicking tires, but there's nothing to report on at the current time. We are definitely looking to replace that income, yeah.
All right. That's it for me. Thank you.
Thanks, Yash.
Thank you. Ladies and gentlemen, once again, if you do have a question, please press star followed by one. There are no further questions at this time. Please proceed.
Okay. Thanks again, everybody, for joining us on the conference call. We look forward to speaking next quarter. Thank you.
Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.