Morguard North American Residential REIT Announces 2015 Third Quarter Results

Nov 4, 2015

MISSISSAUGA, ON, Nov. 4, 2015 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three and nine months ended September 30, 2015. 

Third Quarter Highlights

Acquisition of a 51% interest in a garden-style property comprising 252 suites located in Cooper City, Florida, for $37 million. The acquisition was funded by cash on hand and an advance from Morguard Corporation.

The REIT is reporting performance of:

  • Third quarter adjusted net operating income ("Adjusted NOI") of $26.4 million, which excludes realty taxes accounted for under IFRIC 21, an increase of $3.8 million over the same period in 2014.
  • Basic funds from operations ("FFO") of $13.3 million for the three months ended September 30, 2015, an increase of $2.5 million, or 22.8% over the same period in 2014.
  • Basic FFO of $0.29 per Unit for the three months ended September 30, 2015, a 26% increase as compared to the $0.23 per Unit for the third quarter of 2014.
  • Basic adjusted funds from operations ("AFFO") of $0.22 per Unit for the three months ended September 30, 2015, a 29% increase as compared to the $0.17 per Unit generated over the same period in 2014.
  • FFO and AFFO payout ratios for the three months ended September 30, 2015 of 52.6% and 67.6%, respectively.

 


 

Financial and Operational Highlights

            

As at

(In thousands of dollars, except as noted otherwise)

September 30,
2015

    

December 31,
2014

  

September 30,
2014

Operational Information

            

Number of properties

45

    

44

  

44

Total suites

13,102

    

12,850

  

12,850

Occupancy percentage

95.7%

    

96.0%

  

96.4%

Average monthly rent – Canada (in actual dollars)

$1,267

    

$1,246

  

$1,241

Average monthly rent – U.S. (in actual U.S. dollars)

US$994

    

US$945

  

US$938

Summary of Financial Information

            

Gross book value

$2,040,922

    

$1,832,287

  

$1,772,163

Indebtedness

$1,116,781

    

$1,022,555

  

$983,290

Indebtedness to gross book value ratio

55%

    

56%

  

55%

Weighted average mortgage interest rate

3.9%

    

3.9%

  

4.1%

Weighted average term to maturity on mortgages payable (years)

5.1

    

5.6

  

4.9

 

 

Financial and Operational Highlights (Continued)

    
 

 

Three months ended
September 30

Nine months ended
September 30

(In thousands of dollars, except per Unit amounts)

2015

2014

2015

2014

Summary of Financial Information

        

Interest coverage ratio(1)

1.96

1.89

1.95

1.84

Indebtedness coverage ratio(1)

1.32

1.33

1.33

1.34

Revenue from income producing properties

$50,310

$43,828

$145,527

$129,679

NOI

$29,857

$25,324

$73,584

$64,748

Adjusted NOI(1)

$26,360

$22,601

$76,617

$67,627

Net operating margin(1)

52%

52%

53%

52%

FFO - basic

$13,277

$10,808

$38,337

$33,034

FFO - diluted

$13,980

$11,512

$40,424

$35,121

FFO per Unit – basic

$0.29

$0.23

$0.82

$0.71

FFO per Unit – diluted

$0.28

$0.23

$0.80

$0.70

AFFO - basic

$10,326

$7,895

$29,522

$23,889

AFFO - diluted

$11,029

$8,599

$31,609

$25,976

AFFO per Unit – basic and diluted

$0.22

$0.17

$0.63

$0.51

Distributions per Unit

$0.15

$0.15

$0.45

$0.45

FFO payout ratio

52.6%

65.2%

54.6%

63.4%

AFFO payout ratio

67.6%

88.2%

70.9%

88.2%

Weighted average number of Units outstanding (in thousands):

      

Basic

46,549

46,525

46,542

46,519

Diluted

50,420

50,396

50,413

50,390

Average exchange rates – United States dollar to Canadian dollar

$1.31

$1.09

$1.26

$1.09
         

 

(1) Excludes realty taxes accounted for under IFRIC 21, which have been adjusted on a pro-rata basis over the entire fiscal year.

 

Net Operating Income

    
 

Three months ended
September 30

Nine months ended
September 30

(In thousands of dollars)

2015

2014

2015

2014

Revenue from income producing properties

$50,310

$43,828

$145,527

$129,679

Property operating expenses

        
 

Operating costs

14,335

12,374

40,047

35,690
 

Realty taxes

1,870

2,218

19,101

17,585
 

Utilities

4,248

3,912

12,795

11,656

Total property operating expenses

20,453

18,504

71,943

64,931

NOI

29,857

25,324

73,584

64,748

Realty taxes accounted for under IFRIC 21

(3,497)

(2,723)

3,033

2,879

Adjusted NOI

$26,360

$22,601

$76,617

$67,627

 

For the three months ended September 30, 2015, consolidated Adjusted NOI increased by $3.8 million, or 16.6%, to $26.4 million, compared to $22.6 million in 2014. The increase was mainly due to an increase in Adjusted NOI in Canada and the U.S. of $532 (or 5.8%) and US$388 (or 3.1%), respectively, and the change in the U.S. foreign exchange rate which increased Adjusted NOI by $2.8 million. The increase in NOI was due to higher rental revenue and lower overall operating expenses in Canada, partially offset by an increase in operating costs in the U.S.

For the nine months ended September 30, 2015, consolidated Adjusted NOI increased by $9.0 million, or 13.3% to $76.6 million, compared to $67.6 million in 2014. The increase was due to an increase in Adjusted NOI in Canada and the U.S. of $1.3 million (or 4.9%) and US$1.2 million (or 3.3%), respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $6.5 million. The increase in NOI was due to higher rental revenue, partially offset by an increase in utilities in Canada and operating costs in the U.S.

Funds from Operations ("FFO")

    
 

Three months ended
September 30

Nine months ended
September 30

(In thousands of dollars, except per Unit amounts)

2015

2014

2015

2014

Net income for the period attributable to the unitholders

$15,005

$16,102

$36,493

$27,638

Add (deduct):

        

Realty taxes accounted for under IFRIC 21

(3,557)

(2,723)

2,973

2,879

Fair value gain on conversion option on the Debentures

(4)

(102)

(63)

(7)

Distributions on Class B LP Units recorded as interest expense

2,583

2,583

7,750

7,750

Foreign exchange gain

(1,121)

(576)

(2,185)

(361)

Net fair value gain on income producing properties

(17,559)

(6,580)

(35,475)

(37,761)

Non-controlling interests' share of fair value gain on income producing properties

147

102

2

514

Fair value (gain) loss on Class B LP Units

7,234

(4,306)

3,101

13,951

Deferred income tax provision

10,549

6,308

25,741

18,431

FFO - basic

$13,277

$10,808

$38,337

$33,034

Interest expense on Debentures

703

704

2,087

2,087

FFO - diluted

$13,980

$11,512

$40,424

$35,121

FFO per Unit - basic

$0.29

$0.23

$0.82

$0.71

FFO per Unit - diluted

$0.28

$0.23

$0.80

$0.70

 

Basic FFO for the three months ended September 30, 2015, increased by $2.5 million, or 22.8%, to $13.3 million ($0.29 per Unit), compared to $10.8 million ($0.23 per Unit) in 2014. The increase is mainly due to an increase in Adjusted NOI of $3.8 million, partially offset by an increase in interest expense of $1.0 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 $1.7 million, of which amount is predominantly included in the increase to Adjusted NOI and interest expense.

Basic FFO for the nine months ended September 30, 2015, increased by $5.3 million, or 16.1%, to $38.3 million ($0.82 per Unit), compared to $33.0 million ($0.71 per Unit) in 2014. The increase is mainly due to an increase in Adjusted NOI of $9.0 million, partially offset by an increase in interest expense of $2.6 million (excluding distributions on Class B LP Units and fair value adjustments), and an increase in trust expenses of $1.3 million.  The change in foreign exchange rates had a positive impact on FFO of $3.8 million, of which amount is predominantly included in the increase to Adjusted NOI and interest expense.

Adjusted Funds from Operations ("AFFO")

    
 

Three months ended
September 30

Nine months ended
September 30

(In thousands of dollars, except per Unit amounts)

2015

2014

2015

2014

FFO - basic

$13,277

$10,808

$38,337

$33,034

Add (deduct):

        

Amortization of mark to market adjustments on mortgages

(1,671)

(1,737)

(5,024)

(5,708)

Amortization of deferred financing costs assumed on Initial Properties

113

220

332

713

Non-controlling interests' share of amortization of deferred financing costs assumed on Initial Properties

(2)

(9)

(6)

(33)

Amortization of cash flow hedge

56

55

168

163

Maintenance capital expenditures

(1,447)

(1,442)

(4,285)

(4,280)

AFFO - basic

10,326

7,895

29,522

23,889

Interest expense on the Debentures

703

704

2,087

2,087

AFFO - diluted

$11,029

$8,599

$31,609

$25,976

AFFO per Unit – basic and diluted

$0.22

$0.17

$0.63

$0.51

 

Basic AFFO for the three months ended September 30, 2015, increased by $2.4 million or 30.8%, to $10.3 million ($0.22 per Unit) compared to $7.9 million ($0.17 per Unit) in 2014.  The increase was primarily driven by the increase in FFO.

Basic AFFO for the nine months ended September 30, 2015, increased by $5.6 million or 23.6%, to $29.5 million ($0.63 per Unit) compared to $23.9 million ($0.51 per Unit) in 2014.  The increase was primarily driven by the increase in FFO.

The REIT's unaudited financial statements for the three months ended September 30, 2015, 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, 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 period ended September 30, 2015 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, November 5, 2015 at 3:00 p.m. (ET) to discuss the financial results for the three months ended September 30, 2015 and 2014. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID # 55767084.

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 13,102 residential suites (as of November 4, 2015) located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas with  an  appraised  value  of approximately $2.0 billion at September 30, 2015. For more information, visit the REIT's website at www.morguard.com.

SOURCE Morguard North American Residential Real Estate Investment Trust

For further information: Morguard North American Residential REIT, K. Rai Sahi, Chief Executive Officer, (905) 281-3800; Robert Wright, Chief Financial Officer, (905) 281-3800