Morguard North American Residential REIT Announces 2013 Results

TSX: MRG.UN

MISSISSAUGA, ON, Feb. 27, 2014 /CNW/ - Morguard North American Residential REIT (the 'REIT") (TSX: MRG.UN) today announced its financial results for the year ended December 31, 2013.

All amounts in CAD thousands, except suites and per unit amounts, unless otherwise noted.

HIGHLIGHTS

On February 19, 2013 and June 28, 2013, the REIT acquired from Morguard Corporation ("Morguard") 12 multi-unit residential properties comprised of 2,722 suites located in Alabama, Florida and Louisiana for a purchase price of approximately $182.4 million partially funded by the assumption of the in-place mortgages of $125.8 million.
On March 15, 2013, the REIT completed the offering of $95.1 million for 8.3 million trust units sold at a price of $11.50 per trust unit and the issuance of $60.0 million principal amount of 4.65% convertible unsecured subordinated debentures maturing on March 30, 2018. The proceeds of the offering, after underwriters' commission, were $149.6 million.
Between April 17, 2013 and May 22, 2013, the REIT acquired 12 multi-unit residential properties, comprised of 3,752 suites located in Colorado, Florida, North Carolina, Georgia and Texas for $463.2 million financed by the assumption of in-place mortgages of $225.2 million and newly arranged mortgages of $59.2 million.
Reflecting the significant activity that occurred during the first half of 2013, the REIT is reporting:
- Consolidated net operating income of $73.5 million for the year ended December 31, 2013, an increase of $32.1 million over 2012.
- Funds from Operations ("FFO") of $34.7 million for the year ended December 31, 2013, an increase of $14.9 million over 2012.
- Adjusted Funds from Operations ("AFFO") of $0.70 per unit for the year ended December 31, 2013, a 15% increase as compared to the $0.61 value generated in 2012.
FFO payout ratio for the year was 77.9% (AFFO payout ratio - 85.7%).


FINANCIAL AND OPERATIONAL HIGHLIGHTS

As at December 31	2013	2012
Operational information
Number of properties	44	20
Total suites	12,850	6,376
Occupancy percentage	95.7%	96.7%
Monthly weighted average in-place rent - Canada	$1,232	$1,202
Monthly weighted average in-place rent - US	$974	$908

Summary of Financial Information
Total gross book value	$1,671,233	$1,020,681
Debt	$938,508	$432,020
Debt to gross book value	56%	42%
Weighted average interest rate on mortgages payable	4.2%	4.3%
Weighted average term to maturity on mortgages payable (years)	4.3	4.7

FINANCIAL AND OPERATIONAL HIGHLIGHTS

For the years ended December 31 (in thousands of dollars, except per unit amounts)	2013	2012
Summary of Financial Information
Revenue from income producing properties	$142,939	$80,294
Net operating income ("NOI")	$73,460	$41,340
Comparative net operating income	$39,118	$39,177
Net operating margin	51%	51%
Interest coverage	1.85	2.11

Funds from Operations (FFO) - basic	$34,657	$19,747
Funds from Operations (FFO) - diluted	$36,889	$19,747
FFO per unit - basic and diluted	$0.77	$0.64

Adjusted Funds from Operations (AFFO) - basic	$31,392	$18,803
Adjusted Funds from Operations (AFFO) - diluted	$33,624	$18,803
AFFO per unit - basic and diluted	$0.70	$0.61
FFO payout ratio	77.92%	93.75%
AFFO payout ratio	85.71%	98.36%
Weighted average number of units outstanding during the period (000's)
- Basic	44,847	30,949
- Diluted	47,944	30,949


NET OPERATING INCOME
For the years ended December 31
(In thousands of dollars)		2013	2012
Revenue from income producing properties
Same property		$76,791	$75,617
Acquisitions		66,148	4,677
Total revenue from income producing properties		142,939	80,294
Property Operating Expenses
Same property
	Operating expenses	$19,491	$18,727
	Utilities	9,572	9,201
	Taxes	8,610	8,512
Same property		37,673	36,440
Acquisitions		31,806	2,514
Total property operating expenses		69,479	38,954
Net Operating Income
Same property		$39,118	$39,177
Acquisitions		34,342	2,163
Total Net Operating Income		$73,460	$41,340

Consolidated net operating income increased by $32.1 million during the year ended December 31, 2013, to $73.5 million, compared to $41.3 million in 2012. The increase was predominantly due to the U.S. acquisitions (24 properties acquired during the current year and three properties acquired during the third quarter of 2012), which increased NOI by US$31.0 million in 2013 and the change in the U.S. foreign exchange rate which increased NOI by $1.3 million. The changes in the Canadian properties and for the remaining U.S. properties were not significant.

FUNDS FROM OPERATIONS ("FFO")
For the years ended December 31
(In thousands of dollars, except per unit amounts)	2013	2012
Net income for the year attributable to the unitholders	$56,381	$187,779
Add (deduct):
Fair value gain on income producing properties	(7,962)	(125,394)
Non-controlling interests' share of fair value gain on income producing properties	649	3,638
Fair value (gain) loss on Class B LP Units	(30,830)	20,668
Fair value gain on conversion option of Debentures	(43)	-
Distributions on Class B LP Units recorded as interest expense	10,333	7,261
Foreign exchange gain	(2,399)	-
Deferred income tax provision (recovery)	8,528	(74,205)
Funds from operations	$34,657	$19,747
Interest expense on convertible debentures	2,232	-
Diluted FFO	$36,889	$19,747
FFO per unit - basic and diluted	$0.77	$0.64

FFO increased by $14.9 million in during the year ended December 31, 2013, to $34.7 million ($0.77 per unit) compared to $19.7 million ($0.64 per unit) in 2012. The increase in FFO is mainly attributable to the U.S. acquisitions which had a positive impact on NOI of US$31.0 million for the year ended December 31, 2013 and a decrease in current income taxes of $0.8 million. These items were partially offset by an increase in interest expense of $13.9 million, due to the mortgages on the U.S. acquisitions and the convertible debentures issued during the first quarter of 2013, and an increase in trust expenses of $4.1 million, predominantly due to an increase in asset management fees on the acquisitions completed in 2013, an increase in professional fees for audit, tax and appraisal services and the asset management incentive distribution fee relating to the REIT exceeding the annual FFO threshold of $0.66 per unit. The change in foreign exchange rates had a positive impact on FFO of $0.7 million.

ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
For the years ended December 31
(In thousands of dollars, except per unit amounts)	2013	2012
Funds from Operations	$34,657	$19,747
Add (deduct):
Amortization of deferred financing costs assumed on Initial Properties	1,469	1,455
Non-controlling interests' share of amortization of deferred financing costs assumed on Initial Properties	(47)	(45)
Maintenance capital expenditures	(4,898)	(2,557)
Amortization of cash flow hedge	211	203
Adjusted funds from operations	31,392	18,803
Interest expense on convertible debentures	2,232	-
Diluted AFFO	$33,624	$18,803
AFFO per unit - basic and diluted	$0.70	$0.61

AFFO increased by $12.6 million for the year ended December 31, 2013, to $31.4 million ($0.70 per unit) compared to $18.8 million ($0.61 per unit) in 2012. The increase is mainly due to an increase in FFO of $14.9 million for the year ended December 31, 2013, partially offset by an increase in maintenance capital expenditures of $2.3 million for the year as a result of the U.S. acquisitions completed in 2013.

About Morguard North American Residential REIT

The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario. It trades on the Toronto Stock Exchange under the ticker symbol MRG.UN. With a strategic focus on the acquisition of high-quality multi-unit residential properties in Canada and the United States, the REIT maximizes long-term unit value through active asset and property management. Its portfolio consists of 12,850 residential suites (as of February 27, 2014) located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas with an appraised value of approximately $1.7 billion at December 31, 2013.