Morguard North American Residential REIT Announces 2016 First Quarter Results

MISSISSAUGA, ON, May 3, 2016 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2016.

First Quarter Highlights

Acquisition of a 370 suite residential property in Ottawa, Ontario, for $67.0 million. The acquisition was funded by cash on hand and a mortgage of $38.6 million at an interest rate of 2.88% for a term of 10 years.

The REIT is reporting performance of:

Adjusted net operating income ("Adjusted NOI") of $28.5 million for the three months ended March 31, 2016, an increase of $3.6 million, or 14.6% compared to 2015.
Basic funds from operations ("FFO") of $14.0 million for the three months ended March 31, 2016, an increase of $1.8 million, or 14.5% over the same period in 2015.
Basic FFO of $0.30 per Unit for the three months ended March 31, 2016, a 15.4% increase as compared to the $0.26 per Unit for 2015.
Basic adjusted funds from operations ("AFFO") of $0.24 per Unit for the three months ended March 31, 2016, a 20.0% increase as compared to the $0.20 per Unit generated over the same period in 2015.
FFO and AFFO payout ratios for the three months ended March 31, 2016 of 49.8% and 63.6%, respectively.

Financial and Operational Highlights

As at	March 31,	December 31,	March 31,
(In thousands of dollars, except as noted otherwise)	2016	2015	2015
Operational Information
Number of properties	46	45	44
Total suites	13,472	13,102	12,850
Occupancy percentage	95.0%	94.8%	95.8%
Average monthly rent - Canada (in actual dollars)	$1,273	$1,272	$1,250
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,011	US$1,002	US$952
Summary of Financial Information
Gross book value	$2,141,201	$2,160,015	$1,931,755
Indebtedness	$1,199,692	$1,186,131	$1,082,562
Indebtedness to gross book value ratio	56%	55%	56%
Weighted average mortgage interest rate	3.7%	3.8%	3.9%
Weighted average term to maturity on mortgages payable (years)	5.3	5.1	5.6
Exchange rates - Canadian dollar to United States dollar	$0.77	$0.72	$0.79
Exchange rates - United States dollar to Canadian dollar	$1.30	$1.38	$1.27

Financial and Operational Highlights (Continued)

For the three months ended March 31,
(In thousands of dollars, except per Unit amounts)	2016	2015
Summary of Financial Information
Interest coverage ratio	1.97	2.02
Indebtedness coverage ratio	1.36	1.40
Revenue from income producing properties	$54,354	$47,687
NOI	$16,272	$14,997
Adjusted NOI	$28,482	$24,861
Same Property Adjusted NOI	$27,128	$24,861
Net operating margin	52%	52%
FFO - basic	$14,019	$12,248
FFO - diluted	$14,713	$12,936
FFO per Unit - basic	$0.30	$0.26
FFO per Unit - diluted	$0.29	$0.26
AFFO - basic	$10,971	$9,269
AFFO - diluted	$11,665	$9,957
AFFO per Unit - basic	$0.24	$0.20
AFFO per Unit - diluted	$0.23	$0.20
Distributions per Unit	$0.15	$0.15
FFO payout ratio	49.8%	57.0%
AFFO payout ratio	63.6%	75.3%
Weighted average number of Units outstanding (in thousands):
Basic	46,528	46,536
Diluted	50,399	50,407
Average exchange rates - Canadian dollar to United States dollar	$0.73	$0.81
Average exchange rates - United States dollar to Canadian dollar	$1.37	$1.24

Net Operating Income

For the three months ended March 31,
(In thousands of dollars)		2016	2015
Revenue from income producing properties
Same Property		$51,713	$47,687
Acquisitions		2,641	—
Total revenue from income producing properties		54,354	47,687
Property operating expenses
Same Property
	Operating costs	13,747	12,349
	Realty taxes	16,956	15,488
	Utilities	4,998	4,853
Same Property		35,701	32,690
Acquisitions		2,381	—
Total property operating expenses		38,082	32,690
NOI
Same Property		16,012	14,997
Acquisitions		260	—
Total NOI		16,272	14,997
Realty taxes accounted for under IFRIC 21		12,210	9,864
Adjusted NOI		$28,482	$24,861

For the three months ended March 31, 2016, consolidated Adjusted NOI increased by $3.6 million (or 14.6%) to $28.5 million, compared to $24.9 million in 2015. The increase was due to an increase in Adjusted NOI in Canada and the U.S. of $1.4 million (or 16.3%) and US$0.4 million (or 2.8%), respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $1.8 million. The increase in Adjusted NOI was attributable to acquisitions completed subsequent to March 31, 2015 and an increase in Same Property Adjusted NOI in Canada resulting from higher rental revenue, lower vacancy and lower overall operating expenses, partially offset by lower Same Property Adjusted NOI in the U.S. resulting from an increase in overall operating expenses, partially offset by higher AMR, net of higher vacancy.

Funds from Operations

For the three months ended March 31,
(In thousands of dollars, except per Unit amounts)	2016	2015
Net loss attributable to unitholders	($24,445)	($10,139)
Add (deduct):
Realty taxes accounted for under IFRIC 21	11,674	9,864
Fair value loss on conversion option on the Debentures	124	29
Distributions on Class B LP Units recorded as interest expense	2,583	2,583
Foreign exchange loss (gain)	1,246	(1,270)
Fair value gain on income producing properties, net	(6,189)	(4,204)
Non-controlling interests' share of fair value gain (loss) on income producing properties	311	(237)
Fair value loss on Class B LP Units	21,013	9,818
Deferred income tax provision	7,702	5,804
FFO – basic	$14,019	$12,248
Interest expense on the Debentures	694	688
FFO – diluted	$14,713	$12,936
FFO per Unit – basic	$0.30	$0.26
FFO per Unit – diluted	$0.29	$0.26

Basic FFO for the three months ended March 31, 2016, increased by $1.8 million, or 14.5%, to $14.0 million ($0.30 per Unit), compared to $12.2 million ($0.26 per Unit) in 2015. The increase is mainly due to an increase in Adjusted NOI of $3.6 million, partially offset by an increase in interest expense of $1.2 million (excluding distributions on Class B LP Units and fair value adjustments), an increase in trust expenses of $0.5 million. The change in foreign exchange rates had a positive impact on FFO of $0.9 million, an amount that is predominantly included in the increase to NOI and interest expense.

Adjusted Funds from Operations

For the three months ended March 31,
(In thousands of dollars, except per Unit amounts)	2016	2015
FFO - basic	$14,019	$12,248
Add (deduct):
Amortization of mark-to-market adjustments on mortgages	(1,726)	(1,731)
Amortization of deferred financing costs assumed on the Initial Properties	99	109
Non-controlling interests' share of amortization of deferred financing costs assumed on the Initial Properties	(2)	(2)
Amortization of tenant incentive and cash flow hedge	45	56
Maintenance capital expenditures	(1,464)	(1,411)
AFFO – basic	10,971	9,269
Interest expense on the Debentures	694	688
AFFO – diluted	$11,665	$9,957
AFFO per Unit – basic	$0.24	$0.20
AFFO per Unit – diluted	$0.23	$0.20

Basic AFFO for the three months ended March 31, 2016, increased by $1.7 million or 18.4%, to $11.0 million ($0.24 per Unit), compared to $9.3 million ($0.20 per Unit) in 2015, which was primarily driven by the increase in FFO.

The REIT's unaudited condensed consolidated financial statements for the three months ended March 31, 2016, along with the Management's Discussion and Analysis will be available on the REIT's website at www.morguard.com and will be filed with SEDAR at www.sedar.com.

Non-IFRS Measures

The REIT's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). The following measures, NOI, Adjusted NOI, Same Property NOI, FFO, AFFO, indebtedness, gross book value, indebtedness to gross book value ratio, interest coverage ratio and indebtedness coverage ratio (collectively, the "non-IFRS measures") as well as other measures discussed elsewhere in this press release, do not have a standardized definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. The REIT uses these measures to better assess the REIT's underlying performance and financial position and provides these additional measures so that investors may do the same. Details on non-IFRS measures are set out in the REIT's Management's Discussion and Analysis for the three months ended March 31, 2016 and available on the REIT's profile on SEDAR at www.sedar.com.

Conference Call Details

Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday, May 5, 2016 at 3:00 p.m. (ET) to discuss the financial results for the quarter ended March 31, 2016 and 2015. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID #84011051.

About Morguard North American Residential REIT

The REIT is an unincorporated, open-ended real estate investment trust established under and governed by the laws of the Province of Ontario. The Units of the REIT trade on the Toronto Stock Exchange under the ticker symbol MRG.UN. With a strategic focus on the acquisition of high-quality multi-suite 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 13,472 residential suites (as of May 3, 2016) located in Alberta, Ontario, Colorado, Texas, Louisiana, Alabama, Georgia, Florida and North Carolina with an appraised value of approximately $2.1 billion as at March 31, 2016. For more information, visit the REIT's website at www.morguard.com.