Good afternoon, ladies and gentlemen, and welcome to the Morguard North American Residential Real Estate Investment Trust fourth quarter for the year ended December 31st, 2024. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator. Call is being recorded on Thursday, February 13th, 2025. I would now like to turn the conference over to Paul Miatello. Please go ahead.
Thank you very much, and good afternoon, everybody. Thank you for joining us. If you're in Toronto, hope you've dug out from whatever snowpile you were, you found yourself under this morning. We'll, I'll do a quick roll call for our conference call today. With us, we have our Chris Newman, our Chief Financial Officer. We have Ruth Grabel, Assistant Vice President, Canadian Residential; John Talano, Senior Vice President, US Residential; Beverley Flynn, Senior Vice President, General Counsel; and again, myself. I'm Paul Miatello, Senior Vice President with the REIT. With those quick introductions, I'll turn it over to Chris Newman, our CFO, for some quick comments, and then we'll open the floor for questions. Chris?
Yep.
Okay. Thank you, Paul. As is customary, I'll provide some comments on the REIT's financial position and performance. In terms of our financial position, the REIT completed the fourth quarter of 2024 with total assets amounting to CAD 4.6 billion, higher compared to CAD 4.1 billion as of December 31st, 2023. This is due to a fair value increase on the REIT's income-producing properties, the forward exchange rate fluctuation, and an increase in cash. The REIT finished the fourth quarter with approximately CAD 52 million of cash on hand and CAD 90 million advanced to Morguard Corporation. The following is a brief summary of the REIT's notable achievements throughout 2024. During the year, the REIT completed the refinancing of five Canadian properties located in Mississauga, Ontario, providing gross mortgage proceeds of CAD 319 million at a weighted average interest rate of 4.34% and for a weighted average term of 9.7 years.
The maturing mortgages had a balance at maturity of CAD 141 million and had a weighted average interest rate of 3.29%, resulting in additional net proceeds of CAD 178 million before financing costs. And looking ahead to 2025, the REIT has two mortgage maturities: one maturity in Canada, which we have a binding commitment in place, providing additional net proceeds of CAD 48.6 million before financing costs for a term of 10 years and an interest rate of 4.02%. And we have one U.S. maturity scheduled to mature later this year during the third quarter. Also, during 2024, the REIT continued to be active under its NCIB, repurchasing approximately 1.5 million units at an average unit price of CAD 17.46. The REIT's IFRS net asset value per unit is CAD 42.90, making the NCIB plan an appealing use of capital.
As announced previously, in November, the REIT increased its annual cash distribution by CAD 0.02 per unit, an increase of 2.7%, bringing the distributions to CAD 0.76 per unit from CAD 0.74 per unit on an annualized basis. As of December 31st, 2024, the REIT's mortgages payable had an overall weighted average term to maturity of 5.2 years, an increase from 4.9 years at December 31st, 2023, and the weighted average interest rate increased to 3.88% compared to 3.72% at December 31st, 2023. The REIT's debt-to-gross book value ratio was 39.7% at December 31st, 2024, an increase compared to 38.7% at December 31st, 2023. Turning to the statement of income, net income was CAD 99.4 million for the year ended December 31st, 2024, compared to CAD 185.3 million for 2023.
The $85.9 million increase in net income was primarily due to the following non-cash items: an increase in fair value loss on Class B LP units of CAD 65.6 million, a lower fair value gain on real estate properties of CAD 19.6 million, which were partially offset by an increase in equity income on investments of CAD 9.7 million, which was primarily driven by a higher fair value gain on real estate properties. IFRS net operating income was CAD 181.4 million for the year ended December 31st, 2024, an increase of CAD 1.2 million or 0.7% compared to 2023. The change in foreign exchange rate increased NOI by CAD 0.4 million, over half of the overall variance last year, and on a same property proportionate basis, NOI in Canada increased by CAD 4.5 million or 7.2%, mainly due to AMR growth, net of higher vacancy, and partly offset by an increase in operating expenses.
NOI in the US decreased by CAD 3.4 million or 4% from an increase in operating expenses, partially offset by AMR growth, net of higher vacancy. The change in foreign exchange rate increased the property proportion NOI by CAD 0.4 million. Interest expense increased by CAD 7.8 million for the year ended December 31st, 2024, compared to 2023, primarily due to an increase in interest on mortgages of CAD 5.9 million from higher principal and interest rates, on the completion of the REIT's refinancing. As well, interest expense increased due to a lower non-cash fair value gain on conversion option of the convertible debentures of CAD 1.3 million. Partially offsetting the additional interest on mortgages was an increase in other income of CAD 2.2 million, primarily from interest income earned on excess cash held or advanced to Morguard on the credit facility.
The REIT's 2024 performance translated into basic FFO of CAD 89.9 million, a decrease of CAD 2.1 million or 2.3% when compared to 2023. And on a per-unit basis, FFO for the year ended December 31st, 2024, was unchanged at CAD 1.65 per unit, compared to 2023 due to the following offsetting factors. On a same property proportionate basis in local currency, an increase in interest expense, partially offset by an increase in interest income and an increase in NOI, had a CAD 0.03 per unit negative impact. And the change in foreign exchange rate had a CAD 0.01 per unit negative impact. A decrease in other income primarily from lower interest earned on restricted cash held as part of a 1031 Exchange had a CAD 0.01 per unit negative impact. The acquisition of Xavier in the first quarter of 2023 had a CAD 0.02 per unit positive impact.
The impact from units repurchased under the REIT's NCIB had a CAD 0.03 per unit positive impact. The REIT's FFO payout ratio of 45% for the year ended December 31st, 2024, compared to 43.8% in 2023, represents a very conservative level, which allows for significant cash retention. Operationally, the REIT's average monthly rent in Canada increased to CAD 1,772 at December 31st, 2024, a 5.9% increase compared to 2023, reflecting the quality of our Canadian portfolio. During the year, the Canadian portfolio turned over approximately 10% of its suites and achieved AMR growth on suite turnover of 23.1%. Occupancy in Canada finished the fourth quarter of 2024 at 97.2% compared to 98.7% at December 31st, 2023. Rental market conditions remain strong and stable in Canada as housing demand continues to outdistance supply.
While in the U.S., AMR increased by 1.7% compared to 2023, having an average monthly rent of $1,907 at the end of the fourth quarter. Occupancy in the U.S. of 93.8% at December 31st, 2024, was slightly lower compared to 94.2% at December 31st, 2023. However, occupancy improved from 91.7% at September 30th, 2024, and is positioned well moving into this lower winter leasing season. During the year ended December 31st, 2024, the REIT's total CapEx amounted to CAD 59.4 million. That included revenue-enhancing in-suite and tenant improvements, garage renovations, exterior building projects, common area, energy initiatives, as well as mechanical, plumbing, and electrical projects. At this time, I'll turn the call back over to the moderator to answer any questions.
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Jonathan Kelcher at TD Cowen. Please go ahead.
Good afternoon. First question, just on the U.S. operations, good to see the occupancy back up in the quarter to your targeted range. How should we think about AMR growth for 2025?
Sure. John Talano, I'll turn it over to you.
Sure. I would say that, you know, we had a meteoric rise of our rents, you know, over the last few years. That normalized in Q4. You know, we didn't see a whole lot of growth, and we saw some occupancy exposure. That has all normalized. The portfolio is actually sitting in a great position today. We're well above, you know, where we were last quarter. We are, again, pushing rents. It is definitely gonna be much more normal than what we've seen in, you know, over the last two years, but more like what we saw pre-COVID. You know, 3%-5% range depending on the markets.
Okay, and then occupancy kind of staying in your current, in and about the current range, although I think you just said you were a little bit higher right now.
Yeah. We aim for 95, and we're actually above that today.
Okay. That's helpful. And then on the Canadian side, you guys did have a little bit of vacancy in Mississauga this quarter. Maybe you give us some color on that. And then looking ahead to 2025, kind of the expectations on uplifts on turnover.
Sure. Thanks, John. I'll turn that one over to Ruth, who can assist.
Thank you. For the Mississauga properties, we had a higher number of move-outs during the quarter, and that's primarily due to some garage restoration programs that we have ongoing at one or two properties, and we do have some competition with new rental products, but we fully expect to recover. It's, you know, during the winter months. It's a slower leasing period, and it's just a temporary decline for the Mississauga properties. But our turnover rates, they remain low, and we have a healthy rent growth, like year to date was 23%. I expect the same going forward for 2025 within, like, 20% to, you know, 23%.
So uplift in and around the 20% range?
Correct. Correct. We have this, you know, our turnover rate remains quite low, but in that range. Correct. 20-23, 20-25.
Okay. That's, that's helpful. I'll turn it back. Thanks.
Thanks, John.
Thank you. The next question comes from Morton Spector at Morton Spector Holdings. Please go ahead.
Hi. Good afternoon. With your REIT, with your REIT trading at a 66% discount to your appraised value of CAD 48.50, are you looking at ways to narrow that huge discount? Let me be more specific, such as increasing your present buyback plan, or perhaps number two, making a tender offer for, say, 20% of your float. 20% of your float would cost you what, well, at CAD 20, it would cost you CAD 100 million, which you have. And that would, you know, that would, increase the value of the remaining shares naturally and provide a floor for your, for your, stock price.
Yeah. Paul, did you want to take that one?
Any?
Yeah.
Yeah. I'll.
Thoughts?
Yeah. I'll start on that one, Chris. Thank you, Morgan, for your question. With respect to the Normal Course Issuer Bid,
Right.
You know, the bid is obviously active. Chris mentioned that in his overview, and I believe we spent. Chris can give me the most accurate number, but I think we spent over CAD 20 million in 2024 on the NCIB. You know, under the rules of the normal course issuer bid and based, you know, or sorry, under the rules, the maximum number of shares or units we can buy in a day is based on a percentage of daily trading volume, right?
So, you know, we're restricted. Most days, we're buying the maximum number of units we can. Of course, there's once a week an exemption to buy a block. But we just don't see necessarily a lot of blocks trading. And of course, we have to be careful not to buy on an uptick. So the NCIB is very active. And I would characterize it as active as it can be under the rules.
Right.
As for a tender offer, you know, what I would say is that, you know, management is looking at all options. I mean, obviously, you're right. The capital is there. The capital's on the, you know, the cash's on the balance sheet.
Right.
In one form of working capital or another. So we are, you know, weighing our options in terms of how to deploy that capital. And so, you know, enhanced buybacks would be, you know, sort of part of those discussions. Enhanced buybacks over and above what you're doing now?
Yeah. As a management team, like, these are the things that we would evaluate regularly. Again, we're, you know, we're weighing it against, you know, growth that we desire to achieve in, you know, our designated or target markets, you know, for buying hard assets. So those are, you know, those are things that we review on an ongoing basis.
Right. But if you can buy your existing properties at a 66% discount, why would you go out and buy something on the market, you know?
Yeah. Again, you know, for a vehicle our size, you know, there's only a certain amount of capital that, you know, we can deploy. So it's, you know, obviously a scarce resource. So I'm, you know, not saying that, you know, we wouldn't do otherwise. But again, we're just, you know, weighing the pros and the cons.
All right. I appreciate that. I just want to say that, as a former accountant, I want to congratulate Chris on, on getting audited statements out by February the 11th. That's amazing, really. That's a terrific achievement.
Yeah. No, thank you very much.
Yeah. That's, that's quite an achievement.
Thank you, Chris. Chris deserves a lot of the credit. And yeah, but we do have a good team at Morguard supporting him. But, Chris.
I congratulate the team.
Thank you. Thank you for your comment. We appreciate that.
Thank you.
Thanks.
Thank you. The next question comes from Jimmy Shan at RBC Capital Markets. Please go ahead.
Thanks. Just to follow up on that tender offer, sort of question, would you say that's an option that you're considering perhaps more seriously than before? Or, or how, when you say you're valuing all options, like, how, how high on the list is that?
Yeah. I mean, I would say, Jimmy, like, it's something that we talk about. It's, it's, you know, it's, it's definitely on the list. Again, you know, especially with a cross-border REIT, you know, we, you know, we've said it on previous calls, but, you know, we're so obviously the capital's there. We're looking to acquire assets at the same time. You know, we'd, we'd like to grow in, in Canada. You know, most of our acquisitions over the last several years have been in the U.S. Our, our distributions are in Canadian dollars. Our, the interest on our convertible debentures is in Canadian dollars. So, you know, we're, you know, we're also mindful of, you know, striking that, that balance, on both sides of the border that, you know, allow us to ensure that, you know, we've got, you know, we've got the cash in Canada that we need.
You know, we've typically not repatriated a ton of cash from the U.S. to Canada. You know, we plan for it, but there's always potentially some tax friction, and things like that you gotta be mindful of. So, you know, buying in Canada is a priority as well. But overall, you know, I would just characterize it as saying that, you know, it's the tender and buying shares back or buying units back in a larger way is something that we're just definitely discussing.
Okay, and then I just want to follow up on the Mississauga comment. Is that, is that market, are you having to offer incentives at this point? Or, given some of the competition that you mentioned, how would you, how would you characterize that?
So we are offering some of. Oh, sorry.
No, go ahead. Go ahead, Ruth.
So we are offering some concessions right now just during the winter months. As you know, the weather has been quite bad. So just to entice people into the buildings, we are offering concessions. But again, we do.
One-month free rent type of thing?
Correct. Correct. One-month free rent, but not at all properties. Just, again, at the properties that we had a higher number of move-outs because we have garage restoration projects going on, so we are offering one-month free rent.
Okay. And then in the U.S., the lease spreads, what are they now, the new and renewal lease spreads?
So we were running roughly 2% for our turnover in Q4. Again, that was really lumpy because we, you know, we dipped in occupancy a little bit, and we were offering some concessions at that point. But, you know, now we're looking at a little bit higher. So, you know, 3%-5%.
So this is on new leases?
Correct.
Okay. That's quite a bit higher than most, I would say.
Again, it depends on the region. We're actually doing really well in Chicago right now too, plus our DC markets have been performing. You know, those have some really high occupancies and you know, like DC, we had some rent control that had been put into place temporarily, which was extended, so those didn't climb as quickly as some of the other, you know, our southern, our Sunbelt assets, so there was just more room on both, you know, new lease and on renewals in those markets. Plus, in Chicago, we have very limited supply coming in this year and next, so you know, we expect some good things there as well.
Okay. All right. Thanks.
Thanks, Jimmy.
Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star one. Next question comes from Alexander Leon at Desjardins Capital Markets. Please go ahead.
Thanks, operator. And good afternoon, everyone. Maybe starting off, just following up on Jimmy's line of questioning there. In the US portfolio, would it be fair to say that the incentives were concentrated in Texas and Georgia where you saw the big occupancy increases?
Well, I would say in Q4, honestly, we were playing whack-a-mole all over the portfolio. So, it started in New Orleans and then it went to Texas, then to Tampa, and we were able to offer, you know, various incentives in those markets. And, you know, that has completely stabilized across the portfolio. Today, the only area that we're concentrating our marketing efforts in is in Pensacola. But we're right now 92.5% occupied there. You know, we'd like to be at 95%. You know, we're 94, 94.7 leased. But again, you know, everywhere else across the portfolio, we're looking really good, especially in the winter months.
Okay. So you're at the point now where you're kind of turning the taps off on the incentive program?
Absolutely. Yeah. We're above our target occupancy.
Okay. Great. That's good to hear. I was wondering if you can give me some color on the CAD 90 million that was advanced to the Morguard facility, like, just what's that relating to and if there's, like, any expectation on how long that's gonna remain on the facility?
Yeah, Alex. So between MRG and Morguard Corp, we do have a credit facility. And you know, if MRC is in a position where they would require some funds, our highest return on our investment, compared to our bank interest is with the Morguard facility. So in the situation where Morguard would request some, we're happy to provide some. So that's where we're at right now, at a CAD 90 million balance. We obviously have another 45 million, slated to come in on a refinancing, on March 1st. But we don't expect that to be a long-term hold. And MRG can recoup that at any moment on request. There is sufficient liquidity on the Morguard side to request that. So it's just temporarily parked there, in the best interest of both parties.
Okay. And sorry, just to say that.
No, no, no, Alex.
The rate that you guys.
Sorry, Alex.
Go ahead.
But I just want to add to Chris's comment. Like, Derek, Chris framed it in terms of, you know, Morguard Corp's requirements. But, you know, the other side of it that's equally as true is that, you know, MRG has the surplus cash. It's being loaned up the chain, of course. MRG is getting an interest rate, like, compared to if the money was just sitting in a bank account today, MRG is getting an interest rate that's about 200 basis points higher from MRC. So, you know, there's definitely a benefit to the REIT. There's benefit to both parties, but definitely a benefit to the REIT from loaning that money upstream.
Okay. That sounds reasonable. Thanks for the additional color there. I'm curious, on a Q4 basis, on a constant currency within this U.S. portfolio, how did that same property revenue growth number look in Q4 versus Q3?
Give me a sec.
Yeah. I'm just wondering if it's improved at all just given the Q4 stats weren't separately disclosed. So I don't think I'm backing into the exact right number.
Yeah. I, like, maybe I can on the side. I can get back to you on that one. I don't have it handy right now, but I know our vacancy improved. So I know that sequentially we did better. I just don't have it versus last year. I believe we had a little bit of occupancy challenges last year this time. So it may be slightly variable. I can give you the numbers on the side.
But here, I think Alex is clear. I just want to be clear, Alex. Your question was Q4 revenue increase, constant currency versus Q3 or versus Q4 last year?
I mean, I'm talking like the year-over-year,
Year-over-year.
I'm just wondering if the year-over-year growth in Q4 was better or worse than the year-over-year growth from Q3.
Okay. So yeah, yeah, it was.
Yeah.
Yes. So Chris will get back to you just if it's, yeah, constant currency. We might not have that at our fingertips.
Okay. No worries. And then the last one for me, just on the acquisition side, I'm wondering if you guys have seen any changes in the market, with maybe some of the current macro uncertainties and volatility going on, or if that's something you're still actively looking at?
I mean, we're definitely actively still looking, for certain. You know, in terms of recent changes, you know, things are still fairly brisk in Canada. You know, there's still a fair amount of product pretty much across the country that we're seeing. So we are screening a lot of product in Canada these days. Likewise in the US, you know, with everything that's going on now, I mean, we're not, you know, just obviously some concerns about interest rates, you know, not coming down or, in fact, interest rates maybe going up if some of the inflationary policies get put into effect. So we're not, but we're not really seeing any slowdown yet in terms of deal flow. But still continuing to screen a lot of product in the US as well right now.
Okay. And would you say you have a preference for Canada over the U.S. or vice versa?
I mean, fairly agnostic. I mean, you know, we've got target markets, obviously, in both north and south of the border. So, you know, we're just gonna, you know, look for the deals where we, you know, where we think we can generally, you know, how we end up making the decisions is, you know, finding opportunities where, you know, we think over the long term, we've got the most conviction that, you know, we can raise rents and raise cash flow.
Okay. Great. Appreciate the call, you guys. I'll turn it back.
Thanks, Alex.
Thank you. We have no further questions. I will turn the call back over to Paul Miatello for closing comments.
Okay. And once again, thanks everybody for joining us on the Q4 analyst call. And we look forward to speaking to you next time, later in April. So thanks and have a great day, everybody.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.