Morguard North American Residential REIT Announces 2016 Results

MISSISSAUGA, ON, Feb. 14, 2017 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the year ended December 31, 2016.

Highlights

The REIT is reporting performance of:

Net operating income ("NOI") of $115.3 million for the year ended December 31, 2016, an increase of $11.1 million, or 10.7% compared to 2015.
Basic funds from operations ("FFO") of $57.6 million for the year ended December 31, 2016, an increase of $6.5 million, or 12.7% compared to 2015.
Basic FFO of $1.24 per Unit for the year ended December 31, 2016, a 12.7% increase as compared to the $1.10 per Unit for 2015.
Basic adjusted funds from operations ("AFFO") of $0.99 per Unit for the year ended December 31, 2016, a 16.5% increase as compared to the $0.85 per Unit generated over the same period in 2015.
FFO and AFFO payout ratios for the year ended December 31, 2016 of 49.0% and 61.3%, respectively.

On February 1, 2016, the REIT acquired a 370 suite residential property located in Ottawa, Ontario, for $67.0 million (the "160 Chapel Acquisition"). 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.

On November 1, 2016, the Board of Trustees announced an increase in the REIT's annual cash distribution by $0.04 per Unit (6.7%). The increase was effective for the November 2016 distribution and was paid on December 15, 2016 to unitholders of record as at November 30, 2016. The REIT's annual distributions increased to $0.64 per Unit from the previous level of $0.60 per Unit.

During the year, the REIT completed the refinancing on 13 multi-suite residential properties in the amount of $239.4 million at a weighted average interest rate of 3.27% and a weighted average term of 9.4 years that resulted in $94.5 million of upfinancing mortgage proceeds. These financings further strengthened the balance sheet by increasing the weighted average term to maturity to 5.7 years from 5.1 years while lowering the weighted average interest rate to 3.62% from 3.82% when compared to December 31, 2015.

On January 9, 2017, the REIT completed an offering for 4,370,000 Units sold for a price of $13.75 per Unit for aggregate gross proceeds of $60,088 (the "Offering"). The net proceeds of the Offering will be used to fund acquisitions, repay debt and for general trust purposes.

Financial and Operational Highlights

As at December 31, (In thousands of dollars, except as noted otherwise)	2016	2015

Operational Information
Number of properties	46	45
Total suites	13,472	13,102
Occupancy percentage	95.2%	94.8%
Average monthly rent - Canada (in actual dollars)	$1,296	$1,272
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,038	US$1,002
Summary of Financial Information
Gross book value	$2,285,727	$2,160,015
Indebtedness	$1,237,613	$1,186,131
Indebtedness to gross book value ratio	54%	55%
Weighted average mortgage interest rate	3.6%	3.8%
Weighted average term to maturity on mortgages payable (years)	5.7	5.1
Exchange rates - Canadian dollar to United States dollar	$0.74	$0.72
Exchange rates - United States dollar to Canadian dollar	$1.34	$1.38

For the years ended December 31, (In thousands of dollars, except per Unit amounts)	2016	2015
Summary of Financial Information
Interest coverage ratio	2.04	1.96
Indebtedness coverage ratio	1.39	1.33
Revenue from income producing properties	$218,472	$198,442
NOI	$115,294	$104,182
Adjusted NOI	$115,294	$103,710
Same Property NOI	$109,144	$102,501
Net operating margin	53%	52%
FFO - basic	$57,591	$51,112
FFO - diluted	$60,381	$53,902
FFO per Unit - basic	$1.24	$1.10
FFO per Unit - diluted	$1.20	$1.07
AFFO - basic	$46,062	$39,627
AFFO - diluted	$48,852	$42,417
AFFO per Unit - basic	$0.99	$0.85
AFFO per Unit - diluted	$0.97	$0.84
Distributions per Unit	$0.61	$0.60
FFO payout ratio	49.0%	54.6%
AFFO payout ratio	61.3%	70.5%
Weighted average number of Units outstanding (in thousands):
Basic	46,510	46,545
Diluted	50,381	50,416
Average exchange rates - Canadian dollar to United States dollar	$0.76	$0.78
Average exchange rates - United States dollar to Canadian dollar	$1.32	$1.28

Net Operating Income

For the years ended December 31, (In thousands of dollars)		2016	2015
Revenue from income producing properties
Same Property		$206,213	$196,189
Acquisitions		12,259	2,253
Total revenue from income producing properties		218,472	198,442
Property operating expenses
Same Property
	Operating costs	56,032	54,552
	Realty taxes	22,705	22,162
	Utilities	18,332	16,974
Same Property		97,069	93,688
Acquisitions		6,109	572
Total property operating expenses		103,178	94,260
NOI
Same Property		109,144	102,501
Acquisitions		6,150	1,681
Total NOI		115,294	104,182
Realty taxes accounted for under IFRIC 21		—	(472)
Adjusted NOI		$115,294	$103,710

For the year ended December 31, 2016, Adjusted NOI increased by $11.6 million (or 11.2%) to $115.3 million, compared to $103.7 million in 2015. The increase was due to higher Adjusted NOI in Canada and the U.S. of $5.8 million (or 15.2%) and US$2.6 million (or 5.0%), respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $3.2 million. The increase in Adjusted NOI was attributable to acquisitions completed during and subsequent to the year ended December 31, 2015 and an increase in Same Property NOI in Canada and U.S. mainly driven by higher rental revenue, partially offset by an increase in overall operating expenses.

Funds from Operations

For the years ended December 31, (In thousands of dollars, except per Unit amounts)	2016	2015
Net income attributable to unitholders	$29,263	$38,784
Add/(deduct):
Realty taxes accounted for under IFRIC 21	—	(241)
Fair value loss (gain) on conversion option on the Debentures	600	(53)
Distributions on Class B LP Units recorded as interest expense	10,448	10,333
Foreign exchange loss (gain)	540	(2,882)
Fair value gain on income producing properties, net	(68,270)	(38,804)
Non-controlling interests' share of fair value gain (loss) on income producing properties	1,395	(413)
Fair value loss on Class B LP Units	50,808	11,195
Deferred income tax provision	32,807	33,193
FFO – basic	$57,591	$51,112
Interest expense on the Debentures	2,790	2,790
FFO – diluted	$60,381	$53,902
FFO per Unit – basic	$1.24	$1.10
FFO per Unit – diluted	$1.20	$1.07

Basic FFO for the year ended December 31, 2016, increased by $6.5 million, or 12.7%, to $57.6 million ($1.24 per Unit), compared to $51.1 million ($1.10 per Unit) in 2015. The increase is mainly due to an increase in Adjusted NOI of $11.6 million, partially offset by an increase in interest expense of $4.0 million (excluding distributions on Class B LP Units and fair value adjustments), an increase in trust expenses of $1.8 million. The change in foreign exchange rates had a positive impact on FFO of $1.3 million.

Adjusted Funds from Operations

For the years ended December 31, (In thousands of dollars, except per Unit amounts)	2016	2015
FFO - basic	$57,591	$51,112
Add/(deduct):
Amortization of mark-to-market adjustment on mortgages	(5,773)	(6,740)
Amortization of deferred financing costs assumed on the Initial Properties	371	440
Non-controlling interests' share of amortization of deferred financing costs assumed on the Initial Properties	(8)	(8)
Gain on extinguishment of mortgages payable	(322)	—
Amortization of tenant incentive and cash flow hedge	135	565
Maintenance capital expenditures	(5,932)	(5,742)
AFFO – basic	46,062	39,627
Interest expense on the Debentures	2,790	2,790
AFFO – diluted	$48,852	$42,417
AFFO per Unit – basic	$0.99	$0.85
AFFO per Unit – diluted	$0.97	$0.84

Basic AFFO for the year ended December 31, 2016, increased by $6.5 million or 16.2%, to $46.1 million ($0.99 per Unit), compared to $39.6 million ($0.85 per Unit) in 2015, which was primarily driven by the increase in FFO.

Subsequent Events

On January 9, 2017, the REIT completed an offering for 4,370,000 Units sold for a price of $13.75 per Unit for aggregate gross proceeds of $60,088. As part of the transaction, Morguard purchased 1,230,000 of the Units offered amounting to $16,688. Upon closing of the Offering, Morguard owned a 47.0% effective interest in the REIT through its ownership of Units and Class B LP Units. The net proceeds of the Offering will be used to fund acquisitions, repay debt and for general trust purposes.

On February 1, 2017, the REIT repaid on maturity four mortgages in the amount of US$45,325

The REIT's audited consolidated financial statements for the year ended December 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 year ended December 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, February 16, 2017 at 3:00 p.m. (ET) to discuss the financial results for the year ended December 31, 2016 and 2015. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID # 57770386.

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 February 14, 2017) located in Alberta, Ontario, Colorado, Texas, Louisiana, Alabama, Georgia, Florida and North Carolina with an appraised value of approximately $2.2 billion at December 31, 2016. For more information, visit the REIT's website at www.morguard.com.