Morguard North American Residential REIT Announces 2017 Second Quarter Results
Aug 1, 2017
MISSISSAUGA, ON, Aug. 1, 2017 /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, 2017.
Second Quarter Highlights
On May 15, 2017, the REIT acquired a newly-constructed property comprising 60 rental townhomes located in Toronto, Ontario, for a purchase price of $16.7 million, including closing costs.
The REIT is reporting performance of:
- Adjusted net operating income ("Adjusted NOI") of $31.0 million for the three months ended June 30, 2017, an increase of $2.8 million, or 10.1% compared to 2016.
- Basic funds from operations ("FFO") of $16.3 million for the three months ended June 30, 2017, an increase of $2.4 million, or 17.4% over the same period in 2016.
- Basic FFO of $0.32 per Unit for the three months ended June 30, 2017, a 6.7% increase as compared to the $0.30 per Unit for the second quarter of 2016.
- FFO payout ratio for the three months ended June 30, 2017 of 49.9%.
- During second quarter, the REIT completed $81.3 million (US$60.9 million) of refinancing secured by three residential properties located in Colorado, Georgia and Florida, at a weighted average interest rate of 3.84% and a weighted average term of 10 years. The refinancing resulted in $26.6 million (US$20.0 million) of additional mortgage proceeds on the maturing loans which had a weighted average interest rate of 4.46%. The REIT has now completed financing arrangements on all mortgages scheduled to mature during 2017.
Financial and Operational Highlights
|
As at |
June 30, |
December 31, |
June 30, |
|
|
(In thousands of dollars, except as noted otherwise) |
2017 |
2016 |
2016 |
|
|
Operational Information |
||||
|
Number of properties |
47 |
46 |
46 |
|
|
Total suites |
13,532 |
13,472 |
13,472 |
|
|
Occupancy percentage |
95.7% |
95.2% |
95.6% |
|
|
Average monthly rent - Canada (in actual dollars) |
$1,308 |
$1,296 |
$1,279 |
|
|
Average monthly rent - U.S. (in actual U.S. dollars) |
US$1,052 |
US$1,038 |
US$1,020 |
|
|
Summary of Financial Information |
||||
|
Gross book value |
$2,354,943 |
$2,285,727 |
$2,151,617 |
|
|
Indebtedness |
$1,172,213 |
$1,237,613 |
$1,196,995 |
|
|
Indebtedness to gross book value ratio |
50% |
54% |
56% |
|
|
Weighted average mortgage interest rate
|
3.5% |
3.6% |
3.7% |
|
|
Weighted average term to maturity on mortgages payable (years) |
6.1 |
5.7 |
5.3 |
|
|
Exchange rates - Canadian dollar to United States dollar |
$0.77 |
$0.74 |
$0.77 |
|
|
Exchange rates - United States dollar to Canadian dollar |
$1.30 |
$1.34 |
$1.29 |
|
|
Three months ended |
Six months ended |
|||
|
June 30 |
June 30 |
|||
|
(In thousands of dollars, except per Unit amounts) |
2017 |
2016 |
2017 |
2016 |
|
Summary of Financial Information |
||||
|
Interest coverage ratio |
2.38 |
2.00 |
2.32 |
1.99 |
|
Indebtedness coverage ratio |
1.64 |
1.36 |
1.58 |
1.36 |
|
Revenue from income producing properties |
$57,201 |
$53,586 |
$112,822 |
$107,940 |
|
NOI |
$35,165 |
$31,988 |
$52,082 |
$48,260 |
|
Adjusted NOI |
$31,021 |
$28,185 |
$60,447 |
$56,667 |
|
Same Property Adjusted NOI |
$31,039 |
$28,185 |
$58,775 |
$55,545 |
|
Net operating margin |
54% |
53% |
54% |
52% |
|
FFO - basic |
$16,305 |
$13,891 |
$31,582 |
$27,910 |
|
FFO - diluted |
$17,001 |
$14,587 |
$32,966 |
$29,300 |
|
FFO per Unit - basic |
$0.32 |
$0.30 |
$0.62 |
$0.60 |
|
FFO per Unit - diluted |
$0.31 |
$0.29 |
$0.60 |
$0.58 |
|
Distributions per Unit |
$0.16 |
$0.15 |
$0.32 |
$0.30 |
|
FFO payout ratio |
49.9% |
50.2% |
51.4% |
50.0% |
|
Weighted average number of Units outstanding (in thousands): |
||||
|
Basic |
50,894 |
46,498 |
50,698 |
46,513 |
|
Diluted |
54,765 |
50,369 |
54,569 |
50,384 |
|
Average exchange rates - Canadian dollar to United States dollar |
$0.74 |
$0.78 |
$0.75 |
$0.75 |
|
Average exchange rates - United States dollar to Canadian dollar |
$1.34 |
$1.29 |
$1.33 |
$1.33 |
Net Operating Income
|
Three months ended |
Six months ended |
||||
|
June 30 |
June 30 |
||||
|
(In thousands of dollars) |
2017 |
2016 |
2017 |
2016 |
|
|
Revenue from income producing properties |
|||||
|
Same Property |
$57,201 |
$53,586 |
$109,736 |
$105,565 |
|
|
Acquisitions |
— |
— |
3,086 |
2,375 |
|
|
Total revenue from income producing properties |
57,201 |
53,586 |
112,822 |
107,940 |
|
|
Property operating expenses |
|||||
|
Same Property |
|||||
|
Operating costs |
14,891 |
14,748 |
28,563 |
28,532 |
|
|
Realty taxes |
2,674 |
2,477 |
21,389 |
20,554 |
|
|
Utilities |
4,453 |
4,373 |
9,374 |
9,341 |
|
|
Same Property |
22,018 |
21,598 |
59,326 |
58,427 |
|
|
Acquisitions |
18 |
— |
1,414 |
1,253 |
|
|
Total property operating expenses |
22,036 |
21,598 |
60,740 |
59,680 |
|
|
NOI |
|||||
|
Same Property |
35,183 |
31,988 |
50,410 |
47,138 |
|
|
Acquisitions |
(18) |
— |
1,672 |
1,122 |
|
|
Total NOI |
35,165 |
31,988 |
52,082 |
48,260 |
|
|
Realty taxes accounted for under IFRIC 21 |
(4,144) |
(3,803) |
8,365 |
8,407 |
|
|
Adjusted NOI |
$31,021 |
$28,185 |
$60,447 |
$56,667 |
|
For the three months ended June 30, 2017, consolidated Adjusted NOI increased by $2.8 million (or 10.1%) to $31.0 million, compared to $28.2 million in 2016. The increase was due to higher Adjusted NOI in Canada and the U.S. of $1.1 million (or 9.7%) and US$0.7 million (or 5.7%), respectively, and the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $1.0 million. The increase in Adjusted NOI (in local currency) was attributable to higher rental revenue and improved occupancy in Canada and the U.S. as well as lower overall operating expenses, as a decrease in operating expenses in Canada was offset by a slight increase in the U.S.
For the six months ended June 30, 2017, consolidated Adjusted NOI increased by $3.8 million (or 6.7%) to $60.5 million, compared to $56.7 million in 2016. The increase was due to higher Adjusted NOI in Canada and the U.S. of $1.7 million (or 8.0%) and US$1.5 million (or 5.5%), respectively, partially offset by the change in the U.S. foreign exchange rate, which increased Adjusted NOI by $0.6 million. The increase in Adjusted NOI was attributable to the full period impact of the 160 Chapel acquisition completed during the three months ended March 31, 2016 and an increase in Same Property NOI in Canada and the U.S. The increase in Same Property NOI was mainly driven by higher rental revenue and improved occupancy, partially offset by higher realty taxes.
Funds from Operations
|
Three months ended |
Six months ended |
|||
|
June 30 |
June 30 |
|||
|
(In thousands of dollars, except per Unit amounts) |
2017 |
2016 |
2017 |
2016 |
|
Net income (loss) for the period attributable to unitholders |
$59,351 |
$5,262 |
$61,379 |
($19,183) |
|
Add/(deduct): |
||||
|
Realty taxes accounted for under IFRIC 21 |
(3,935) |
(3,635) |
7,957 |
8,039 |
|
Fair value loss on conversion option on the Debentures |
511 |
104 |
1,390 |
228 |
|
Distributions on Class B LP Units recorded as interest expense |
2,756 |
2,584 |
5,512 |
5,167 |
|
Foreign exchange loss |
599 |
104 |
789 |
1,350 |
|
Fair value gain on income producing properties, net |
(61,778) |
(8,773) |
(85,129) |
(14,962) |
|
Non-controlling interests' share of fair value gain on income producing properties |
1,590 |
179 |
2,285 |
490 |
|
Fair value loss on Class B LP Units |
9,472 |
10,850 |
29,796 |
31,863 |
|
Deferred income tax provision |
7,739 |
7,216 |
7,603 |
14,918 |
|
FFO – basic |
$16,305 |
$13,891 |
$31,582 |
$27,910 |
|
Interest expense on the Debentures |
696 |
696 |
1,384 |
1,390 |
|
FFO – diluted |
$17,001 |
$14,587 |
$32,966 |
$29,300 |
|
FFO per Unit – basic |
$0.32 |
$0.30 |
$0.62 |
$0.60 |
|
FFO per Unit – diluted |
$0.31 |
$0.29 |
$0.60 |
$0.58 |
Basic FFO for the three months ended June 30, 2017, increased by $2.4 million, or 17.4%, to $16.3 million ($0.32 per Unit), compared to $13.9 million ($0.30 per Unit) in 2016. The increase is mainly due to higher Adjusted NOI of $2.8 million and a decrease in interest expense of $0.1 million (excluding distributions on Class B LP Units and fair value adjustments), partially offset by an increase in trust expenses of $0.5 million. The change in foreign exchange rates had a positive impact on FFO of $0.4 million.
Basic FFO for the six months ended June 30, 2017, increased by $3.7 million, or 13.2%, to $31.6 million ($0.62 per Unit), compared to $27.9 million ($0.60 per Unit) in 2016. The increase is mainly due to higher Adjusted NOI of $3.8 million and a decrease in interest expense of $0.4 million (excluding distributions on Class B LP Units and fair value adjustments), partially offset by an increase in trust expenses of $0.6 million. The change in foreign exchange rates had a positive impact on FFO of $0.1 million.
Excluding the impact of the offering, basic FFO per unit amounted to $0.33 and $0.65 per Unit for the three and six months ended June 30, 2017, respectively. The impact includes the dilution from additional Units of the January 9, 2017 offering offset by interest savings on the repayment of mortgages on February 1, 2017.
Subsequent Events
On July 6, 2017, the REIT acquired a property comprising 104 suites and 32,000 square feet of commercial area located in Falls Church, Virginia, for a purchase price of $55.7 million (US$43.0 million), excluding closing costs. The property is subject to a long-term land lease, with a fixed price land purchase option available in 12.25 years. The acquisition was partially financed by a new mortgage of $30.6 million (US$23.7 million) at an interest rate of 4.05% for a term of 12.25 years.
On July 10, 2017, the REIT acquired a property comprising 515 suites and 18,000 square feet of commercial area located in Chicago, Illinois, for a purchase price of $286.8 million (US$222.5 million), excluding closing costs. The acquisition was partially financed by a new mortgage of $157.9 million (US$122.5 million) at an interest rate of 3.49% for a term of eight years.
The REIT entered into a binding agreement to acquire a property comprising 492 suites located in Rockville, Maryland, for a purchase price of US$129.0 million, excluding closing costs. The acquisition is expected to close during the third quarter of 2017.
On July 12, 2017, the REIT sold four U.S properties located in Mobile, Alabama, comprising 1,329 suites, for gross proceeds of $89.7 million (US$70.1 million).
The REIT's unaudited condensed consolidated financial statements for the three and six months ended June 30, 2017, 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, 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 and six months ended June 30, 2017 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 3, 2017 at 3:00 p.m. (ET) to discuss the financial results for the quarter ended June 30, 2017 and 2016. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID # 47320330.
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 12,822 residential suites (as of August 1, 2017) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina and Virginia with an appraised value of approximately $2.3 billion at June 30, 2017. 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