Morguard North American Residential REIT (TSX:MRG.UN, Financial) is an open-end real estate investment trust listed on the Toronto Stock Exchange. The REIT had total assets of $3.5 billion as of Dec. 31. The REIT has a market cap of about 650 million Canadian dollars ($515 million).
The REIT was formed to own a diversified portfolio of multi-suite residential rental properties across Canada and the U.S. Its primary objectives are to generate stable and growing cash distributions to shareholders on a tax-efficient basis, to enhance the value of its portfolio and the long-term value of its units through active asset and property management and to expand the REIT’s asset base through acquisitions and property improvements.
Following its initial public offering in April 2012, the REIT has more than doubled its portfolio size to 12,255 suites at 43 multi-suite residential properties in North America. The real estate portfolio consists of 27 U.S. residential apartment communities located in Colorado, Florida, Georgia, Illinois, Louisiana, Maryland, North Carolina, Texas and Virginia and 16 Canadian residential apartment communities located in Alberta and Ontario.
The Globe & Mail newspaper reported that on Jan. 25, director Bruce Keith Robertson bought 1,600 shares in the public market at $16.40 each. That represents his first public market purchase of 2022. Over the past year, he has spent $368,370 buying shares and now holds 427,760 shares total. The REIT has above-median officer and director ownership compared to its mid-cap peers.
Source: Globe & Mail.
While the GF Value Line shows the REIT is fairly valued, the valuation panel shows solid value, particularly in the Graham number and tangible book value. As such, I would lean more toward the latter.
The share price is less than half of tangible book value. Canadian REIT's follow International Financial Reporting Standards accounting, where book value reflects the market value of the properties.
The gap between book value and the stock price appears to have widened, showing a greater margin of safety.
On Jan. 17, the company reported that its financial position remains strong with a portfolio of 13,275 rental suites across 43 properties. Revenue rose by 1.3% to $248.7 million and total assets increased to $3.1 billion, up slightly from $3.0 billion in 2019. Similarly, the net operating income for the year increased by 2.0% and basic funds from operations of $68.9 million increased by 7.4% over the same period. The REIT continues to be in an excellent liquidity position for future growth, with access to $120.7 million in cash and amounts available on its credit facility.
Morguard is paying a dividend yield of 4.21% and has a solid record of distributions since its inception. Funds from operations comfortably exceeds the dividend payout.
A look at the makeup of the balance sheet shows equity and debt nicely balanced and much of the assets are physical assets. As such, this looks like a financially healthy REIT.
Source: Simplywall.st
Conclusion
Based on tangible book value and price-to-FFO, Morguard North American Residential REIT appears to be of extraordinary value. The insider buying appears to confirm this view. Residential real estate is an attractive, relatively low-risk and stable asset class to own. As such, Morguard appears to fit the bill for an income stock. Investors are not only getting decent income, but an appreciating asset in these inflationary times.
