Morguard North American Residential REIT Announces 2014 First Quarter Results

TSX: MRG.UN

MISSISSAUGA, ON, May 7, 2014 /CNW/ - Morguard North American Residential REIT (the 'REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2014.

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

HIGHLIGHTS

Reflecting the significant acquisition activity that occurred during 2013, the REIT is reporting:
- Normalized net operating income (excluding the impact of IFRIC 21) of $22.1 million for the three months ended March 31, 2014, an increase of $9.5 million over the same period in 2013.
- Funds from Operations ("FFO") of $10.7 million for the three months ended March 31, 2014, an increase of $4.4 million over the same period in 2013.
- Adjusted Funds from Operations ("AFFO") of $0.16 per unit for the three months ended March 31, 2014, a 14% increase as compared to the $0.14 value generated in the first quarter of 2013.
FFO payout ratio for the period was 65.2% (AFFO payout ratio - 93.8%)
The REIT retrospectively adopted International Financial Reporting Interpretations Committee Interpretation 21, "Levies" ("IFRIC 21") effective January 1, 2014. The adoption of this interpretation required that the realty taxes for all of the REIT's U.S. properties owned at the beginning of the year be recognized on January 1^st, which increased realty tax expense by $8.4 million for the three months ended March 31, 2014 (2013 - $1.7 million), with a corresponding increase in the fair value gain on the REIT's income producing properties.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
As at	March 31, 2014	December 31, 2013
Operational information
Number of properties	44	44
Total suites	12,850	12,850
Occupancy percentage	95.2%	95.7%
Monthly weighted average in-place rent - Canada	$1,235	$1,232
Monthly weighted average in-place rent - U.S. (in U.S. dollars)	US$919	US$916
Total gross book value	$1,731,617	$1,671,233
Debt	$963,538	$938,508
Debt to gross book value	56%	56%
Weighted average interest rate on mortgages payable	4.2%	4.2%
Weighted average term to maturity on mortgages payable (years)	4.1	4.3

FINANCIAL AND OPERATIONAL HIGHLIGHTS
For the three months ended March 31, (in thousands of dollars, except per unit amounts)	2014	2013
Summary of Financial Information
Revenue from income producing properties	$42,761	$24,847
Normalized net operating income⁽¹⁾	$22,132	$12,629
Net operating income	$13,762	$10,902
Same property normalized net operating income⁽¹⁾	$12,469	$12,629
Net operating margin⁽¹⁾	52%	51%
Interest coverage⁽¹⁾	1.77	2.00

Funds from Operations (FFO) - basic	$10,742	$6,377
Funds from Operations (FFO) - diluted	$11,430	$6,499
FFO per unit - basic and diluted	$0.23	$0.16

Adjusted Funds from Operations (AFFO) - basic	$7,592	$5,559
Adjusted Funds from Operations (AFFO) - diluted	$8,280	$5,681
AFFO per unit - basic and diluted	$0.16	$0.14

FFO payout ratio	65.22%	93.75%
AFFO payout ratio	93.75%	107.14%

Weighted average number of units outstanding during the period (000's)
- Basic	46,514	39,780
- Diluted	50,385	40,512

1 Excludes realty taxes accounted for under IFRIC 21.

NET OPERATING INCOME
		2014			2013
For the three months ended March 31, (In thousands of dollars)		Reported NOI	IFRIC 21	Normalized NOI	Reported NOI	IFRIC 21	Normalized NOI
Revenue from income producing properties
Same property		$25,589	—	$25,589	$24,847	—	$24,847
Acquisitions		17,172	—	17,172	—	—	—
Total revenue from income producing properties		42,761	—	42,761	24,847	—	24,847
Property Operating Expenses
Same property
	Operating expenses	6,578	—	6,578	6,276	—	6,276
	Utilities	3,572	—	3,572	3,091	—	3,091
	Realty taxes	5,573	(2,603)	2,970	4,578	(1,727)	2,851
Same property		15,723	(2,603)	13,120	13,945	(1,727)	12,218
Acquisitions		13,276	(5,767)	7,509	—	—	—
Total property operating expenses		28,999	(8,370)	20,629	13,945	(1,727)	12,218
Net Operating Income
Same property		9,866	2,603	12,469	10,902	1,727	12,629
Acquisitions		3,896	5,767	9,663	—	—	—
Total Net Operating Income		$13,762	$8,370	$22,132	$10,902	$1,727	$12,629

Normalized net operating income increased by $9.5 million during the three months ended March 31, 2014, to $22.1 million, compared to $12.6 million in 2013. The increase was due to the U.S. acquisitions, which increased NOI by US$8.8 million in 2014, and the change in the U.S. foreign exchange rate which increased NOI by $1.2 million. These items were partially offset by a decrease in NOI for the Canadian properties of $0.4 million.

FUNDS FROM OPERATIONS ("FFO")
For the three months ended March 31,
(In thousands of dollars, except per unit amounts)	2014	2013
Net income (loss) for the period attributable to the unitholders	$9,112	$(3,939)
Add (deduct):
Realty taxes accounted for under IFRIC 21	8,370	1,727
Fair value (gain) loss on income producing properties	(21,254)	4,085
Non-controlling interests' share of fair value gain on income producing properties	366	65
Fair value loss on Class B LP Units	5,856	1,377
Fair value gain on conversion option of convertible debentures	77	—
Distributions on Class B LP Units recorded as interest expense	2,583	2,583
Foreign exchange gain	(31)	—
Deferred income tax provision	5,663	479
Funds from operations	$10,742	$6,377
Interest expense on convertible debentures	688	122
Diluted funds from operations	$11,430	$6,499
FFO per unit - basic and diluted	$0.23	$0.16

FFO increased by $4.4 million during the three months ended March 31, 2014, to $10.7 million ($0.23 per unit), compared to $6.4 ($0.16 per unit) in 2013. The increase is mainly due to an increase in normalized NOI of $9.5 million, partially offset by an increase in interest expenses of $3.6 million, an increase in trust expenses of $1.1 million and a decrease in other income of $0.4 million. The change in foreign exchange rates had a positive impact on FFO of $0.7 million.

ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
For the three months ended March 31,
(In thousands of dollars, except per unit amounts)	2013	2012
Funds from Operations	$10,742	$6,377
Add (deduct):
Amortization of deferred financing costs assumed on Initial Public Offering ("IPO")	249	367
Non-controlling interests' share of amortization of deferred financing costs assumed on IPO	(12)	(13)
Amortization of mark to market adjustments on mortgages	(2,030)	(417)
Maintenance capital expenditures	(1,411)	(807)
Amortization of cash flow hedge	54	52
Adjusted funds from operations	7,592	5,559
Interest expense on convertible debentures	688	122
Diluted AFFO	$8,280	$5,681
AFFO per unit - basic and diluted	$0.16	$0.14

AFFO increased by $2.0 million for the three months ended March 31, 2014, to $7.6 million ($0.16 per unit) compared to $5.6 million ($0.14 per unit) in 2013. The increase is mainly due to an increase in FFO of $4.4 million for the three months ended March 31, 2014, partially offset by an increase in amortization of mark to market adjustments on mortgages and an increase in maintenance capital expenditures of $0.6 million for the period as a result of the U.S. acquisitions completed in 2013.

CONFERENCE CALL DETAILS

Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday, May 8, 2014 at 3:00 p.m. (ET) to discuss the financial results for the quarters ended March 31, 2014 and 2013. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID# 29909054.

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 May 7, 2014) located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas with an appraised value of approximately $1.7 billion at March 31, 2014.