Morguard North American Residential REIT Announces 2015 Second Quarter Results

MISSISSAUGA, ON, Aug. 4, 2015 /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, 2015.

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

Highlights

The REIT is reporting performance of:

Adjusted net operating income ("Adjusted NOI"), excluding the impact of IFRIC 21, of $25.4 million for the three months ended June 30, 2015, an increase of $2.5 million over the same period in 2014.
Funds from Operations ("FFO") of $12.8 million for the three months ended June 30, 2015, an increase of $1.3 million over the same period in 2014.
FFO of $0.28 per unit for the three months ended June 30, 2015, a 12% increase as compared to the $0.25 per unit for the second quarter of 2014.
Adjusted Funds from Operations ("AFFO") of $0.21 per unit for the three months ended June 30, 2015, a 17% increase as compared to the $0.18 value generated over the same period in 2014.
FFO payout ratio for the three months ended June 30, 2015 was 53.57% (AFFO payout ratio – 71.43%).

Financial and Operational Highlights
As at	June 30, 2015	December 31, 2014	June 30, 2014
Operational Information
Number of properties	44	44	44
Total suites	12,850	12,850	12,850
Occupancy percentage	95.8%	96.0%	95.9%
Monthly weighted average in-place rent – Canada	$1,258	$1,246	$1,238
Monthly weighted average in-place rent – U.S. (in U.S. dollars)	US$961	US$945	US$929
Summary of Financial Information
Total gross book value	$1,932,933	$1,832,287	$1,761,000
Debt	$1,069,013	$1,022,555	$1,000,298
Debt to gross book value	55%	56%	57%
Weighted average interest rate on mortgages payable and retained debt	3.8%	3.9%	4.0%
Weighted average term to maturity on mortgages payable (years)	5.4	5.6	5.2

	Three months ended June 30		Six months ended June 30
(in thousands of dollars, except per unit amounts)	2015	2014	2015	2014
Summary of Financial Information

Revenue from income producing properties (IPP)	$47,530	$43,090	$95,217	$85,851
Adjusted net operating income⁽¹⁾	$25,396	$22,895	$50,257	$45,027
Net operating income	$28,730	$25,662	$43,727	$39,424
Net operating margin⁽¹⁾	53%	53%	53%	52%
Interest coverage⁽¹⁾	1.97	1.85	1.99	1.81

Funds from Operations (FFO) - basic	$12,812	$11,485	$25,060	$22,227
Funds from Operations (FFO) - diluted	$13,508	$12,180	$26,444	$23,610
FFO per unit – basic	$0.28	$0.25	$0.54	$0.48
FFO per unit – diluted	$0.27	$0.24	$0.52	$0.47

Adjusted Funds from Operations (AFFO) - basic	$9,927	$8,403	$19,196	$15,995
Adjusted Funds from Operations (AFFO) - diluted	$10,623	$9,098	$20,580	$17,378
AFFO per unit – basic and diluted	$0.21	$0.18	$0.41	$0.34
FFO payout ratio	53.57%	60.00%	55.56%	62.50%
AFFO payout ratio	71.43%	83.33%	73.17%	88.24%
Weighted average number of units outstanding during the period (000's)
- Basic	46,542	46,519	46,539	46,517
- Diluted	50,413	50,390	50,410	50,388

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

Net Operating Income
		Three months ended June 30		Six months ended June 30
(in thousands of dollars)		2015	2014	2015	2014
Revenue from income producing properties		$47,530	$43,090	$95,217	$85,851
Property Operating Expenses
	Operating expenses	13,363	11,972	25,712	23,316
	Utilities	3,694	3,352	8,547	7,744
	Realty taxes	1,743	2,104	17,231	15,367
Total property operating expenses		18,800	17,428	51,490	46,427
Net Operating Income		28,730	25,662	43,727	39,424
Realty taxes accounted for under IFRIC 21		(3,334)	(2,767)	6,530	5,603
Adjusted Net Operating Income		$25,396	$22,895	$50,257	$45,027

Adjusted net operating income increased by $2.5 million, or 10.9%, during the three months ended

June 30, 2015, to $25.4 million, compared to $22.9 million in 2014. The increase was mainly due to higher rental revenue due to rental increases in Canada and U.S. of $0.3 million and US$0.6 million, respectively, and the change in the U.S. foreign exchange rate which increased Adjusted NOI by $1.8 million.

Adjusted net operating income for the six months ended June 30, 2015, increased by $5.2 million, or 11.6% to $50.3 million, compared to $45.0 million in 2014. The increase was due to higher rental revenue due to rental increases in Canada and U.S. of $0.5 million and US$1.7 million, respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $3.6 million. The higher rental revenue was partially offset by an increase in utilities of $0.3 million and US$0.1 million in Canada and U.S., respectively.

Funds from Operations ("FFO")
	Three months ended June 30		Six months ended June 30
(In thousands of dollars, except per unit amounts)	2015	2014	2015	2014
Net income for the period attributable to the unitholders	$31,627	$2,424	$21,488	$11,536
Add (deduct):
Realty taxes accounted for under IFRIC 21	(3,334)	(2,767)	6,530	5,603
Net fair value gain on IPP	(13,712)	(9,927)	(17,916)	(31,181)
Non-controlling interests' share of fair value gain (loss) on IPP	92	46	(145)	412
Fair value (gain) loss on Class B LP Units	(13,951)	12,401	(4,133)	18,257
Fair value (gain) loss on conversion option on debentures	(88)	18	(59)	95
Distributions on Class B LP Units recorded as interest expense	2,584	2,584	5,167	5,167
Foreign exchange loss (gain)	206	246	(1,064)	215
Deferred income tax provision	9,388	6,460	15,192	12,123
Funds From Operations	$12,812	$11,485	$25,060	$22,227
Interest expense on convertible debentures	696	695	1,384	1,383
Diluted Funds From Operations	$13,508	$12,180	$26,444	$23,610
FFO per unit - basic	$0.28	$0.25	$0.54	$0.48
FFO per unit - diluted	$0.27	$0.24	$0.52	$0.47

FFO for the three months ended June 30, 2015, increased by $1.3 million, or 11.6%, to $12.8 million ($0.28 per Unit), compared to $11.5 million ($0.25 per Unit) in 2014. The increase is mainly due to an increase in Adjusted NOI of $2.5 million, partially offset by an increase in interest expense of $0.9 million, and an increase in trust expenses of $0.3 million. The change in foreign exchange rates had a positive impact on FFO of $1.0 million.

FFO for the six months ended June 30, 2015, increased by $2.8 million, or 12.7%, to $25.1 million ($0.54 per Unit), compared to $22.2 million ($0.48 per Unit) in 2014. The increase is mainly due to an increase in Adjusted NOI of $5.2 million, partially offset by an increase in interest expense of $1.6 million, and an increase in trust expenses of $0.8 million. The change in foreign exchange rates had a positive impact on FFO of $2.1 million.

Adjusted Funds from Operations ("AFFO")
	Three months ended		Six months ended
	June 30		June 30
(In thousands of dollars, except per unit amounts)	2015	2014	2015	2014
Funds From Operations	$12,812	$11,485	$25,060	$22,227
Add (deduct):
Amortization of deferred financing costs assumed on Initial Properties	110	244	219	493
Non-controlling interests' share of amortization of deferred financing costs assumed on Initial Properties	(2)	(12)	(4)	(24)
Amortization of mark to market adjustments on mortgages	(1,622)	(1,941)	(3,353)	(3,971)
Maintenance capital expenditures	(1,427)	(1,427)	(2,838)	(2,838)
Amortization of cash flow hedge	56	54	112	108
Adjusted Funds From Operations	$9,927	$8,403	$19,196	$15,995
Interest expense on convertible debentures	696	695	1,384	1,383
Diluted AFFO	$10,623	$9,098	$20,580	$17,378
AFFO per unit – basic and diluted	$0.21	$0.18	$0.41	$0.34

AFFO increased by $1.5 million for the three months ended June 30, 2015, to $9.9 million ($0.21 per unit) compared to $8.4 million ($0.18 per unit) in 2014. The increase is mainly due to an increase in FFO of $1.3 million for the three months ended June 30, 2015 and the decrease in amortization of mark to market adjustments on mortgages of $0.3 million.

AFFO increased by $3.2 million for the six months ended June 30, 2015, to $19.2 million ($0.41 per unit) compared to $16.0 million ($0.34 per unit) in 2014. The increase is mainly due to an increase in FFO of $2.8 million for the six months ended June 30, 2015 and the decrease in amortization of mark to market adjustments on mortgages of $0.6 million.

Conference Call Details
Morguard North American Residential Real Estate Investment Trust will hold a conference call on Friday, August 7, 2015 at 11:00 a.m. (ET) to discuss the financial results for the quarters ended June 30, 2015 and 2014. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID# 77143068.

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 4, 2015) located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas with an appraised value of approximately $1.9 billion at June 30, 2015.