Morguard North American Residential REIT Announces 2017 Results

Feb 14, 2018

MISSISSAUGA, ON, Feb. 14, 2018 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the year ended December 31, 2017.

Highlights

The REIT is reporting annual performance of:

  • Net operating income ("NOI") of $122.7 million for the year ended December 31, 2017, an increase of $7.4 million, or 6.5% compared to 2016.
     
  • Proportionate net operating income ("Proportionate NOI") of $119.0 million for the year ended December 31, 2017, an increase of $6.4 million, or 5.6% compared to 2016.
     
  • Net income of $173.1 million for the year ended December 31, 2017, compared to $32.0 million for the year ended December 31, 2016. The increase was primarily due to a higher fair value gain on income producing properties and a lower fair value loss on Class B LP Units compared to 2016, as well as a one-time deferred tax recovery recorded in 2017 resulting from a change in the U.S. federal tax rate.
     
  • Basic funds from operations ("FFO") of $59.7 million for the year ended December 31, 2017, an increase of $2.1 million, or 3.7% over the same period in 2016.
     
  • Basic FFO of $1.18 per Unit for the year ended December 31, 2017, a 4.8% decrease as compared to the $1.24 in 2016.
     
  • Indebtedness to Gross Book Value ratio improved from 54% in 2016 to 51% as at December 31, 2017.
     
  • FFO payout ratio for the year ended December 31, 2017 of 54.7%.

 

The REIT is reporting the following corporate and portfolio highlights for 2017:

  • On October 31, 2017, the REIT announced an increase to its monthly cash distributions to $0.055 per Unit, representing $0.66 per Unit on an annualized basis. The increase became effective for the November 2017 distribution, and was paid on December 15, 2017 to unitholders of record as at November 30, 2017 and represents a 3.1% increase from the REIT's $0.64 per Unit annualized distribution.
     
  • On August 17, 2017, the REIT acquired a 50% interest in a property comprising 492 suites located in Rockville, Maryland, in which the REIT had a net investment of $40.1 million (US$31.7 million). The purchase price of the property was $166.7 million (US$131.8 million), including closing costs and was partially funded by a mortgage in the amount of $89.7 million (US$71.0 million) at an interest rate of 3.55% for a term of 10 years.
     
  • On July 12, 2017, the REIT sold four U.S. properties located in Mobile, Alabama, comprising 1,329 suites, for net proceeds of $88.7 million (US$69.3 million).
     
  • On July 10, 2017, the REIT acquired a property comprising 515 suites and approximately 20,000 square feet of commercial area located in Chicago, Illinois, for a purchase price of $292.7 million (US$227.1 million), including 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. On October 2, 2017, the REIT sold a 49% interest in the property to an institutional partner for $63.4 million (US$50.7 million).
     
  • On July 6, 2017, the REIT acquired a property comprising 104 suites and approximately 33,000 square feet of commercial area located in Falls Church, Virginia, for a purchase price of $56.5 million (US$43.7 million), including closing costs.
     
  • On May 15, 2017, the REIT acquired a newly constructed property comprising 60 rental townhomes located in Toronto, Ontario, for a purchase price of $16.8 million, including closing costs (the "Downsview Park Acquisition"). The property was acquired before leasing had commenced and the lease-up of suites was completed in early 2018.
     
  • 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 $60.1 million.

 

Financial and Operational Highlights

As at December 31

    

(In thousands of dollars, except as noted otherwise)

2017

2016

Operational Information

    

Number of properties

46

46

Total suites

13,314

13,472

Occupancy percentage

94.4%

95.2%

Average monthly rent - Canada (in actual dollars)

$1,327

$1,294

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

US$1,203

US$1,028

Summary of Financial Information

    

Gross book value

$2,651,097

$2,285,727

Indebtedness

$1,363,228

$1,237,613

Indebtedness to gross book value ratio

51%

54%

Weighted average mortgage interest rate

3.5%

3.6%

Weighted average term to maturity on mortgages payable (years)

6.2

5.7

Exchange rates - United States dollar to Canadian dollar

$1.25

$1.34

 

Financial and Operational Highlights (Continued)

For the years ended December 31

  

(In thousands of dollars, except per Unit amounts)

2017

2016

Summary of Financial Information

    

Interest coverage ratio

2.19

2.04

Indebtedness coverage ratio

1.54

1.39

Revenue from income producing properties

$226,495

$218,472

NOI

$122,736

$115,294

Proportionate NOI

$118,970

$112,620

Same Property Proportionate NOI

$105,603

$103,111

NOI margin - IFRS

54.2%

52.8%

NOI margin - Proportionate

53.7%

52.8%

Net income

$173,131

$31,978

FFO - basic

$59,725

$57,591

FFO - diluted

$62,515

$60,381

FFO per Unit - basic

$1.18

$1.24

FFO per Unit - diluted

$1.14

$1.20

Distributions per Unit

$0.64

$0.61

FFO payout ratio

54.7%

49.0%

Weighted average number of Units outstanding (in thousands):

    

Basic

50,802

46,510

Diluted

54,673

50,381

Average exchange rates - United States dollar to Canadian dollar

$1.30

$1.32

 

Net Income

Net income of $173.1 million for the year ended December 31, 2017, increased by $141.2 million compared to $32.0 million in 2016.  The increase in net income was primarily due to the following:

  • An increase in net operating income of $7.4 million;
     
  • An increase in interest expense of $2.5 million, primarily due to a decrease in non-cash items included in interest expense;
     
  • An increase in trust expenses of $0.6 million;
     
  • An equity loss from investment of $1.2 million, primarily due to fair value loss attributable to acquisition costs;
     
  • An increase in foreign exchange loss of $1.0 million;
     
  • An increase in other expense of $1.2 million;
     
  • An increase in net fair value gain on income producing properties of $61.3 million;
     
  • A decrease in fair value loss on Class B LP Units of $26.5 million; and
     
  • A decrease in income taxes (current and deferred) of $52.4 million mainly resulting from a U.S. federal tax rate decrease from 35% to 21% enacted on December 22, 2017.

 

Net Operating Income

For the year ended December 31, 2017, NOI from the REIT's properties increased by $7.4 million (or 6.5%) to $122.7 million, compared to $115.3 million in 2016. The increase in NOI is due to an increase from acquisitions net of the disposal of properties of $4.8 million and an increase in Same Property NOI of $2.6 million (or 2.5%). The Same Property increase of $2.6 million is due to an increase in Canada of $3.2 million (or 7.8%), an increase in the U.S. of US$0.5 million (or 1.1%) and the change in foreign exchange rate which decreased NOI by $1.1 million.

For the year ended December 31, 2017, Proportionate NOI from the REIT's properties increased by $6.4 million (or 5.6%) to $119.0 million, compared to $112.6 million in 2016. The increase in Proportionate NOI is due to an increase from acquisitions net of the disposal of properties of $3.9 million and an increase in Same Property Proportionate NOI of $2.5 million (or 2.4%).  The Same Property increase of $2.5 million is due to an increase in Canada of $3.1 million (or 7.8%), an increase in the U.S. of US$0.5 million (or 1.0%) and the change in foreign exchange rate which decreased Proportionate NOI by $1.1 million.

Funds from Operations

Basic FFO for the year ended December 31, 2017, increased by $2.1 million, or 3.7%, to $59.7 million ($1.18 per Unit), compared to $57.6 million ($1.24 per Unit) in 2016.  The increase is mainly due to higher Proportionate 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), an increase in trust expenses of $0.6 million and an increase in other expenses of $1.2 million.

Basic FFO per Unit for the year ended December 31, 2017, decreased by $0.06 to $1.18 per Unit, compared to $1.24 per Unit due to the following factors:

i)   

the change in the foreign exchange rate had a $0.01 per Unit negative impact;

ii)  

the Downsview Acquisition under initial lease-up has not yet fully contributed to NOI as stabilized
occupancy was achieved in early 2018;

iii) 

the U.S. properties acquired during 2017 have incurred transitional elevated vacancies due to (a) new
supply as the competitive properties complete their initial lease-up; and (b) leasing seasonality; and

iv) 

the impact of selling the Alabama properties at a higher yield as compared to the yield achieved on
properties acquired during 2017.

 

Subsequent Events

On February 13, 2018, the REIT completed a public offering of convertible unsecured subordinated debentures on a bought deal basis, of $75.0 million aggregate principal amount of 4.50% convertible unsecured subordinated debentures due March 31, 2023 (the "4.50% Debentures"). The 4.50% Debentures are convertible, at the option of the holder, into Units at $20.20 per Unit. As part of the transaction, Morguard has agreed to purchase $5.0 million of the 4.50% Debentures.

The REIT had granted an over-allotment option exercisable at any time up to 30 days after closing, to acquire additional 4.50% Debentures up to $10.5 million.

The REIT will use the net proceeds from the offering to fund the redemption of all of the REIT's outstanding 4.65% convertible unsecured subordinated debentures on February 26, 2018, which mature on March 30, 2018 and which have a par call date of April 1, 2017. The REIT intends to use the remainder of the net proceeds, if any, to fund future acquisitions, for debt repayment and for general trust purposes.

The REIT's audited consolidated financial statements for the year ended December 31, 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, Proportionate NOI, Same Property NOI, Same Property Proportionate NOI, FFO, indebtedness, gross book value, indebtedness to gross book value ratio, interest coverage ratio, indebtedness coverage ratio and Proportionate Basis (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, 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, February 15, 2018 at 3:00 p.m. (ET) to discuss the financial results for the years ended December 31, 2017 and 2016. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID # 5966836.

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 13,314 residential suites (as of February 13, 2018) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $2.6 billion at December 31, 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