Morguard North American Residential REIT Announces 2016 Second Quarter Results

MISSISSAUGA, ON, Aug. 2, 2016 /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, 2016.

Second Quarter Highlights

The REIT is reporting performance of:

Adjusted net operating income ("Adjusted NOI") of $28.2 million for the three months ended June 30, 2016, an increase of $2.8 million, or 11.0% compared to 2015.
Basic funds from operations ("FFO") of $13.9 million for the three months ended June 30, 2016, an increase of $1.1 million, or 8.4% over the same period in 2015.
Basic FFO of $0.30 per Unit for the three months ended June 30, 2016, a 7.1% increase as compared to the $0.28 per Unit for 2015.
Basic adjusted funds from operations ("AFFO") of $0.24 per Unit for the three months ended June 30, 2016, a 14.3% increase as compared to the $0.21 per Unit generated over the same period in 2015.
FFO and AFFO payout ratios for the three months ended June 30, 2016 of 50.2% and 63.5%, respectively.

Financial and Operational Highlights

As at (In thousands of dollars, except as noted otherwise)	June 30, 2016	December 31, 2015	June 30, 2015
Operational Information
Number of properties	46	45	44
Total suites	13,472	13,102	12,850
Occupancy percentage	95.6%	94.8%	95.8%
Average monthly rent - Canada (in actual dollars)	$1,279	$1,272	$1,258
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,020	US$1,002	US$961
Summary of Financial Information
Gross book value	$2,151,617	$2,160,015	$1,932,933
Indebtedness	$1,196,995	$1,186,131	$1,069,013
Indebtedness to gross book value ratio	56%	55%	55%
Weighted average mortgage interest rate	3.7%	3.8%	3.8%
Weighted average term to maturity on mortgages payable (years)	5.3	5.1	5.4
Exchange rates - Canadian dollar to United States dollar	$0.77	$0.72	$0.80
Exchange rates - United States dollar to Canadian dollar	$1.29	$1.38	$1.25

Financial and Operational Highlights (Continued)

	Three months ended June 30,		Six months ended June 30,
(In thousands of dollars, except per Unit amounts)	2016	2015	2016	2015
Summary of Financial Information
Interest coverage ratio	2.00	1.97	1.99	1.99
Indebtedness coverage ratio	1.36	1.44	1.36	1.42
Revenue from income producing properties	$53,586	$47,530	$107,940	$95,217
NOI	$31,988	$28,730	$48,260	$43,727
Adjusted NOI	$28,185	$25,396	$56,667	$50,257
Same Property Adjusted NOI	$26,669	$25,396	$53,798	$50,257
Net operating margin	53%	53%	52%	53%
FFO - basic	$13,891	$12,812	$27,910	$25,060
FFO - diluted	$14,587	$13,508	$29,300	$26,444
FFO per Unit - basic	$0.30	$0.28	$0.60	$0.54
FFO per Unit - diluted	$0.29	$0.27	$0.58	$0.52
AFFO - basic	$10,985	$9,927	$21,956	$19,196
AFFO - diluted	$11,681	$10,623	$23,346	$20,580
AFFO per Unit - basic	$0.24	$0.21	$0.47	$0.41
AFFO per Unit - diluted	$0.23	$0.21	$0.46	$0.41
Distributions per Unit	$0.15	$0.15	$0.30	$0.30
FFO payout ratio	50.2%	54.5%	50.0%	55.7%
AFFO payout ratio	63.5%	70.3%	63.6%	72.7%
Weighted average number of Units outstanding (in thousands):
Basic	46,498	46,542	46,513	46,539
Diluted	50,369	50,413	50,384	50,410
Average exchange rates - Canadian dollar to United States dollar	$0.78	$0.81	$0.75	$0.81
Average exchange rates - United States dollar to Canadian dollar	$1.29	$1.23	$1.33	$1.24

Net Operating Income

		Three months ended June 30,		Six months ended June 30,
(In thousands of dollars)		2016	2015	2016	2015
Revenue from income producing properties
Same Property		$50,473	$47,530	$102,186	$95,217
Acquisitions		3,113	—	5,754	—
Total revenue from income producing properties		53,586	47,530	107,940	95,217
Property operating expenses
Same Property
	Operating costs	14,027	13,363	27,775	25,712
	Realty taxes	2,143	1,743	19,097	17,231
	Utilities	4,174	3,694	9,172	8,547
Same Property		20,344	18,800	56,044	51,490
Acquisitions		1,254	—	3,636	—
Total property operating expenses		21,598	18,800	59,680	51,490
NOI
Same Property		30,129	28,730	46,142	43,727
Acquisitions		1,859	—	2,118	—
Total NOI		31,988	28,730	48,260	43,727
Realty taxes accounted for under IFRIC 21		(3,803)	3,334	8,407	6,530
Adjusted NOI		$28,185	$25,396	$56,667	$50,257

For the three months ended June 30, 2016, consolidated Adjusted NOI increased by $2.8 million (or 11.0%) to $28.2 million, compared to $25.4 million in 2015. The increase was due to an increase in Adjusted NOI in Canada and the U.S. of $1.3 million (or 13.2%) and US$0.6 million (or 4.6%), respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $0.9 million. The increase in Adjusted NOI was attributable to acquisitions completed subsequent to June 30, 2015 and an increase in Same Property Adjusted NOI in Canada driven by higher rental revenue and lower vacancy, partially offset by lower Same Property Adjusted NOI in the U.S. resulting from an increase in overall operating expenses which was partially offset by higher AMR, net of higher vacancy.

For the six months ended June 30, 2016, consolidated Adjusted NOI increased by $6.4 million (or 12.8%) to $56.7 million, compared to $50.3 million in 2015. The increase was due to an increase in Adjusted NOI in Canada and the U.S. of $2.8 million (or 14.7%) and US$0.9 million (or 3.6%), respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $2.7 million. The increase in Adjusted NOI was attributable to acquisitions completed subsequent to June 30, 2015 and an increase in Same Property Adjusted NOI in Canada driven by 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 which was partially offset by higher AMR, net of higher vacancy.

Funds from Operations

	Three months ended June 30,		Six months ended June 30,
(In thousands of dollars, except per Unit amounts)	2016	2015	2016	2015
Net income (loss) attributable to unitholders	$5,262	$31,627	($19,183)	$21,488
Add/(deduct):
Realty taxes accounted for under IFRIC 21	(3,635)	(3,334)	8,039	6,530
Fair value loss (gain) on conversion option on the Debentures	104	(88)	228	(59)
Distributions on Class B LP Units recorded as interest expense	2,584	2,584	5,167	5,167
Foreign exchange loss (gain)	104	206	1,350	(1,064)
Fair value gain on income producing properties, net	(8,773)	(13,712)	(14,962)	(17,916)
Non-controlling interests' share of fair value gain (loss) on income producing properties	179	92	490	(145)
Fair value loss (gain) on Class B LP Units	10,850	(13,951)	31,863	(4,133)
Deferred income tax provision	7,216	9,388	14,918	15,192
FFO – basic	13,891	12,812	27,910	25,060
Interest expense on the Debentures	696	696	1,390	1,384
FFO – diluted	$14,587	$13,508	$29,300	$26,444
FFO per Unit – basic	$0.30	$0.28	$0.60	$0.54
FFO per Unit – diluted	$0.29	$0.27	$0.58	$0.52

Basic FFO for the three months ended June 30, 2016, increased by $1.1 million, or 8.4%, to $13.9 million ($0.30 per Unit), compared to $12.8 million ($0.28 per Unit) in 2015. The increase is mainly due to an increase in Adjusted NOI of $2.8 million, partially offset by an increase in interest expense of $1.1 million (excluding distributions on Class B LP Units and fair value adjustments), and an increase in trust expenses of $0.5 million. The change in foreign exchange rates had a positive impact on FFO of $0.5 million, of which amount is predominantly included in the increase to Adjusted NOI and interest expense.

Basic FFO for the six months ended June 30, 2016, increased by $2.9 million, or 11.4%, to $27.9 million ($0.60 per Unit), compared to $25.0 million ($0.54 per Unit) in 2015. The increase is mainly due to an increase in Adjusted NOI of $6.4 million, partially offset by an increase in interest expense of $2.3 million (excluding distributions on Class B LP Units and fair value adjustments), and an increase in trust expenses of $1.0 million. The change in foreign exchange rates had a positive impact on FFO of $1.4 million, of which amount is predominantly included in the increase to Adjusted NOI and interest expense.

Adjusted Funds from Operations

	Three months ended June 30,		Six months ended June 30,
(In thousands of dollars, except per Unit amounts)	2016	2015	2016	2015
FFO - basic	$13,891	$12,812	$27,910	$25,060
Add/(deduct):
Amortization of mark-to-market adjustment on mortgages	(1,570)	(1,622)	(3,296)	(3,353)
Amortization of deferred financing costs assumed on the Initial Properties	93	110	192	219
Non-controlling interests' share of amortization of deferred financing costs assumed on the Initial Properties	(2)	(2)	(4)	(4)
Amortization of tenant incentive and cash flow hedge	52	56	97	112
Maintenance capital expenditures	(1,479)	(1,427)	(2,943)	(2,838)
AFFO – basic	10,985	9,927	21,956	19,196
Interest expense on the Debentures	696	696	1,390	1,384
AFFO – diluted	$11,681	$10,623	$23,346	$20,580
AFFO per Unit – basic	$0.24	$0.21	$0.47	$0.41
AFFO per Unit – diluted	$0.23	$0.21	$0.46	$0.41

Basic AFFO for the three months ended June 30, 2016, increased by $1.1 million or 10.7%, to $11.0 million ($0.24 per Unit), compared to $9.9 million ($0.21 per Unit) in 2015. The increase was primarily driven by the increase in FFO.

Basic AFFO for the six months ended June 30, 2016, increased by $2.8 million or 14.4%, to $22.0 million ($0.47 per Unit), compared to $19.2 million ($0.41 per Unit) in 2015. The increase was primarily driven by the increase in FFO.

The REIT's unaudited condensed consolidated financial statements for the three and six months ended June 30, 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, Same Property Adjusted 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 meaning prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers in similar or different industries. 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 and six months ended June 30, 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, August 4, 2016 at 3:00 p.m. (ET) to discuss the financial results for the quarter ended June 30, 2016 and 2015. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID #45518343.

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 August 2, 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 June 30, 2016. For more information, visit the REIT's website at www.morguard.com.