Morguard North American Residential REIT Announces 2014 Second Quarter Results

MISSISSAUGA, ON, Aug. 6, 2014 /CNW/ - Morguard North American Residential REIT (the 'REIT") (TSX: MRG.UN) today announced its financial results for the three and six months ended June 30, 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 $22.9 million for the three months ended June 30, 2014, an increase of $4.7 million over the same period in 2013.
- Funds from Operations ("FFO") of $11.5 million for the three months ended June 30, 2014, an increase of $3.3 million over the same period in 2013.
- Adjusted Funds from Operations ("AFFO") of $0.18 per unit for the three months ended June 30, 2014, a 29% increase as compared to the $0.14 value generated in the second quarter of 2013.
FFO payout ratio for the period was 60.0% (AFFO payout ratio - 83.33%)
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 decreased realty tax expense by $2.8 million for the three months ended June 30, 2014 (2013 - $1.7 million), with a corresponding fair value reduction on the REIT's income producing properties.

FINANCIAL AND OPERATIONAL HIGHLIGHTS


As at	June 30, 2014	December 31, 2013	June 30, 2013
Operational Information
Number of properties	44	44	44
Total suites	12,850	12,850	12,850
Occupancy percentage	95.9%	95.7%	95.5%
Monthly weighted average in-place rent - Canada	$1,238	$1,232	$1,218
Monthly weighted average in-place rent - U.S. (in U.S. dollars)	US$929	US$916	US$905
Summary of Financial Information
Total gross book value	$1,761,000	$1,671,233	$1,642,905
Debt	$1,000,298	$938,508	$930,371
Debt to gross book value	57%	56%	57%
Weighted average interest rate on mortgages payable	4.0%	4.2%	4.2%
Weighted average term to maturity on mortgages payable (years)	5.2	4.3	4.8

FINANCIAL AND OPERATIONAL HIGHLIGHTS


	Three months ended June 30,		Six months ended June 30,
(in thousands of dollars, except per unit amounts)	2014	2013	2014	2013
Summary of Financial Information
Revenue from income producing properties (IPP)	$43,090	$34,716	$85,851	$59,563
Normalized net operating income⁽¹⁾	$22,895	$18,152	$45,027	$30,781
Net operating income	$25,662	$19,850	$39,424	$30,752
Same property normalized net operating income⁽¹⁾	$13,173	$12,950	$25,642	$25,579
Net operating margin⁽¹⁾	53%	52%	52%	52%
Interest coverage⁽¹⁾	1.85	1.75	1.81	1.84

Funds from Operations (FFO) - basic	$11,485	$8,193	$22,227	$14,570
Funds from Operations (FFO) - diluted	$12,180	$8,897	$23,610	$15,396
FFO per unit - basic	$0.25	$0.18	$0.48	$0.34
FFO per unit - diluted	$0.24	$0.18	$0.47	$0.34

Adjusted Funds from Operations (AFFO) - basic	$8,403	$6,355	$15,995	$11,914
Adjusted Funds from Operations (AFFO) - diluted	$9,098	$7,059	$17,378	$12,740
AFFO per unit - basic and diluted	$0.18	$0.14	$0.34	$0.28

FFO payout ratio	60.00%	83.33%	62.50%	88.24%
AFFO payout ratio	83.33%	107.14%	88.24%	107.14%

Weighted average number of units outstanding during the period (000's)
- Basic	46,519	46,501	46,517	43,159
- Diluted	50,390	50,372	50,388	45,469

^{1 Excludes realty taxes accounted for under IFRIC
21.}

NET OPERATING INCOME


		2014				2013
For the three months ended June 30, (In thousands of dollars)		Reported NOI	IFRIC 21		Normalized NOI	Reported NOI	IFRIC 21		Normalized NOI
Revenue from income producing properties
Same property		$25,873	—		$25,873	$25,131	—		$25,131
Acquisitions		17,217	—		17,217	9,585	—		9,585
Total revenue from income producing properties		43,090	—		43,090	34,716	—		34,716
Property Operating Expenses
Same property
	Operating expenses	6,971	—		6,971	7,011	—		7,011
	Utilities	2,751	—		2,751	2,332	—		2,332
	Realty taxes	2,121	857		2,978	2,165	673		2,838
Same property		11,843	857		12,700	11,508	673		12,181
Acquisitions		5,585	1,910		7,495	3,358	1,025		4,383
Total property operating expenses		17,428	2,767		20,195	14,866	1,698		16,564
Net Operating Income
Same property		14,030	(857	)	13,173	13,623	(673	)	12,950
Acquisitions		11,632	(1,910	)	9,722	6,227	(1,025	)	5,202
Total Net Operating Income		$25,662	($2,767	)	$22,895	$19,850	($1,698	)	$18,152

Normalized net operating income increased by $4.7 million during the three months ended June 30, 2014, to $22.9 million, compared to $18.2 million in 2013. The increase was predominantly due to the U.S. acquisitions, which increased NOI by US$3.8 million in 2014, and the change in the U.S. foreign exchange rate which increased NOI by $0.9 million.


		2014				2013
For the six months ended June 30, (In thousands of dollars)		Reported NOI	IFRIC 21		Normalized NOI	Reported NOI	IFRIC 21		Normalized NOI
Revenue from income producing properties
Same property		$51,462	—		$51,462	$49,978	—		$49,978
Acquisitions		34,389	—		34,389	9,585	—		9,585
Total revenue from income producing properties		85,851	—		85,851	59,563	—		59,563
Property Operating Expenses
Same property
	Operating expenses	13,549	—		13,549	13,286	—		13,286
	Utilities	6,323	—		6,323	5,423	—		5,423
	Realty taxes	7,694	(1,746	)	5,948	6,744	(1,054	)	5,690
Same property		27,566	(1,746	)	25,820	25,453	(1,054	)	24,399
Acquisitions		18,861	(3,857	)	15,004	3,358	1,025		4,383
Total property operating expenses		46,427	(5,603	)	40,824	28,811	(29	)	28,782
Net Operating Income
Same property		23,896	1,746		25,642	24,525	1,054		25,579
Acquisitions		15,528	3,857		19,385	6,227	(1,025	)	5,202
Total Net Operating Income		$39,424	$5,603		$45,027	$30,752	$29		$30,781

Normalized net operating income increased by $14.2 million during the six months ended June 30, 2014, to $45.0 million, compared to $30.8 million in 2013. The increase was predominantly due to the U.S. acquisitions, which increased NOI by US$12.6 million in 2014, and the change in the U.S. foreign exchange rate which increased NOI by $2.2 million.

FUNDS FROM OPERATIONS ("FFO")


	Three months ended June 30,		Six months ended June 30,
(In thousands of dollars, except per unit amounts)	2014	2013	2014	2013
Net income for the period attributable to the unitholders	$2,424	$24,192	$11,536	$20,253
Add (deduct):
Realty taxes accounted for under IFRIC 21	(2,767)	(1,698)	5,603	29
Fair value (gain) loss on IPP	(9,927)	(900)	(31,181)	3,185
Non-controlling interests' share of fair value gain on IPP	46	131	412	196
Fair value loss (gain) on Class B LP Units	12,401	(18,600)	18,257	(17,223)
Fair value loss on conversion option of convertible debentures	18	—	95	—
Distributions on Class B LP Units recorded as interest expense	2,584	2,584	5,167	5,167
Foreign exchange loss	246	—	215	—
Deferred income tax provision	6,460	2,484	12,123	2,963

Funds from operations	$11,485	$8,193	$22,227	$14,570

Interest expense on convertible debentures	695	704	1,383	826

Diluted funds from operations	$12,180	$8,897	$23,610	$15,396

FFO per unit - basic	$0.25	$0.18	$0.48	$0.34

FFO per unit - diluted	$0.24	$0.18	$0.47	$0.34

FFO increased by $3.3 million during the three months ended June 30, 2014, to $11.5 million ($0.25 per unit), compared to $8.2 million ($0.18 per unit) in 2013. The increase is mainly due an increase in normalized NOI of $4.7 million, partially offset by an increase in interest expenses of $0.4 million, an increase in trust expenses of $0.7 million and a decrease in other income of $0.3 million. The change in foreign exchange rates had a positive impact on FFO of $0.6 million.

FFO increased by $7.7 million during the six months ended June 30, 2014, to $22.2 million ($0.48 per unit), compared to $14.6 million ($0.34 per unit) in 2013. The increase is mainly due an increase in normalized NOI of $14.2 million, partially offset by an increase in interest expenses of $4.1 million, an increase in trust expenses of $1.8 million and a decrease in other income of $0.7 million. The change in foreign exchange rates had a positive impact on FFO of $1.3 million.

ADJUSTED FUNDS FROM OPERATIONS ("AFFO")


	Three months ended June 30,		Six months ended June 30,
(In thousands of dollars, except per unit amounts)	2014	2013	2014	2013
Funds from Operations	$11,485	$8,193	$22,227	$14,570

Add (deduct):

Amortization of deferred financing costs assumed on Initial Public Offering ("IPO")	244	366	493	733
Non-controlling interests' share of amortization of deferred financing costs assumed on IPO	(12)	(10)	(24)	(23)
Amortization of mark to market adjustments on mortgages	(1,941)	(1,040)	(3,971)	(1,457)
Maintenance capital expenditures	(1,427)	(1,207)	(2,838)	(2,014)
Amortization of cash flow hedge	54	53	108	105
Adjusted funds from operations	8,403	6,355	15,995	11,914
Interest expense on convertible debentures	695	704	1,383	826
Diluted AFFO	$9,098	$7,059	$17,378	$12,740
AFFO per unit - basic and diluted	$0.18	$0.14	$0.34	$0.28

AFFO increased by $2.0 million for the three months ended June 30, 2014, to $8.4 million ($0.18 per unit) compared to $6.4 million ($0.14 per unit) in 2013. The increase is mainly due to an increase in FFO of $3.3 million for the three months ended June 30, 2014, partially offset by an increase in amortization of mark to market adjustments on mortgages of $0.9 million and an increase in maintenance capital expenditures of $0.2 million for the period as a result of the U.S. acquisitions completed in 2013.

AFFO increased by $4.1 million for the six months ended June 30, 2014, to $16.0 million ($0.34 per unit) compared to $11.9 million ($0.28 per unit) in 2013. The increase is mainly due to an increase in FFO of $7.7 million for the six months ended June 30, 2014, partially offset by an increase in amortization of mark to market adjustments on mortgages of $2.5 million and an increase in maintenance capital expenditures of $0.8 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, August 7, 2014 at 3:00 p.m. (ET) to discuss the financial results for the quarters ended June 30, 2014 and 2013. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID# 78880861.

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 August 6, 2014) located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas with an appraised value of approximately $1.7 billion at June 30, 2014.