Morguard North American Residential REIT Announces 2014 Second Quarter Results

MISSISSAUGA, ON, Aug. 6, 2014 /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, 2014.

All amounts in CAD thousands, except suites and per unit amounts, unless otherwise noted.

HIGHLIGHTS

  • Reflecting the significant acquisition activity that occurred during 2013, the REIT is reporting:
    • Normalized net operating income (excluding the impact of IFRIC 21) of $22.9 million for the three months ended June 30, 2014, an increase of $4.7 million over the same period in 2013.
    • Funds from Operations ("FFO") of $11.5 million for the three months ended June 30, 2014, an increase of $3.3 million over the same period in 2013.
    • Adjusted Funds from Operations ("AFFO") of $0.18 per unit for the three months ended June 30, 2014, a 29% increase as compared to the $0.14 value generated in the second quarter of 2013.
  • FFO payout ratio for the period was 60.0% (AFFO payout ratio - 83.33%)
  • The REIT retrospectively adopted International Financial Reporting Interpretations Committee Interpretation 21, "Levies" ("IFRIC 21") effective January 1, 2014.  The adoption of this interpretation required that the realty taxes for all of the REIT's U.S. properties owned at the beginning of the year be recognized on January 1st, which decreased realty tax expense by $2.8 million for the three months ended June 30, 2014 (2013 - $1.7 million), with a corresponding fair value reduction on the REIT's income producing properties.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

       
As at June 30,
2014
December 31,
2013
June 30,
2013
Operational Information      
Number of properties 44 44 44
Total suites 12,850 12,850 12,850
Occupancy percentage 95.9% 95.7% 95.5%
Monthly weighted average in-place rent - Canada $1,238 $1,232 $1,218
Monthly weighted average in-place rent - U.S. (in U.S. dollars) US$929 US$916 US$905
Summary of Financial Information      
Total gross book value $1,761,000 $1,671,233 $1,642,905
Debt $1,000,298 $938,508 $930,371
Debt to gross book value 57% 56% 57%
Weighted average interest rate on mortgages payable 4.0% 4.2% 4.2%
Weighted average term to maturity on mortgages payable (years) 5.2 4.3 4.8
       

FINANCIAL AND OPERATIONAL HIGHLIGHTS

 
  Three months ended
June 30,
Six months ended
June 30,
(in thousands of dollars, except per unit amounts) 2014 2013 2014 2013
Summary of Financial Information        
Revenue from income producing properties (IPP) $43,090 $34,716 $85,851 $59,563
Normalized net operating income(1) $22,895 $18,152 $45,027 $30,781
Net operating income $25,662 $19,850 $39,424 $30,752
Same property normalized net operating income(1) $13,173 $12,950 $25,642 $25,579
Net operating margin(1) 53% 52% 52% 52%
Interest coverage(1) 1.85 1.75 1.81 1.84
         
Funds from Operations (FFO) - basic $11,485 $8,193 $22,227 $14,570
Funds from Operations (FFO) - diluted $12,180 $8,897 $23,610 $15,396
FFO per unit - basic $0.25 $0.18 $0.48 $0.34
FFO per unit - diluted $0.24 $0.18 $0.47 $0.34
         
Adjusted Funds from Operations (AFFO) - basic $8,403 $6,355 $15,995 $11,914
Adjusted Funds from Operations (AFFO) - diluted $9,098 $7,059 $17,378 $12,740
AFFO per unit - basic and diluted $0.18 $0.14 $0.34 $0.28
         
FFO payout ratio 60.00% 83.33% 62.50% 88.24%
AFFO payout ratio 83.33% 107.14% 88.24% 107.14%
         
Weighted average number of units outstanding during the period (000's)    
- Basic 46,519 46,501 46,517 43,159
- Diluted 50,390 50,372 50,388 45,469

1 Excludes realty taxes accounted for under IFRIC 21.

NET OPERATING INCOME

 
  2014 2013
For the three months ended June 30,
(In thousands of dollars)
Reported
NOI
IFRIC
21
Normalized
NOI
Reported
NOI
IFRIC
21
Normalized
NOI
Revenue from income producing properties                        
Same property $25,873     $25,873   $25,131     $25,131  
Acquisitions 17,217     17,217   9,585     9,585  
Total revenue from income producing properties 43,090     43,090   34,716     34,716  
Property Operating Expenses                        
Same property                        
  Operating expenses 6,971     6,971   7,011     7,011  
  Utilities 2,751     2,751   2,332     2,332  
  Realty taxes 2,121   857   2,978   2,165   673   2,838  
Same property 11,843   857   12,700   11,508   673   12,181  
Acquisitions 5,585   1,910   7,495   3,358   1,025   4,383  
Total property operating expenses 17,428   2,767   20,195   14,866   1,698   16,564  
Net Operating Income                        
Same property 14,030   (857 ) 13,173   13,623   (673 ) 12,950  
Acquisitions 11,632   (1,910 ) 9,722   6,227   (1,025 ) 5,202  
Total Net Operating Income $25,662   ($2,767 ) $22,895   $19,850   ($1,698 ) $18,152  

Normalized net operating income increased by $4.7 million during the three months ended June 30, 2014, to $22.9 million, compared to $18.2 million in 2013.  The increase was predominantly due to the U.S. acquisitions, which increased NOI by US$3.8 million in 2014, and the change in the U.S. foreign exchange rate which increased NOI by $0.9 million.

     
  2014 2013
For the six months ended June 30,
(In thousands of dollars)
Reported
NOI
IFRIC
21
Normalized
NOI
Reported
NOI
IFRIC
21
Normalized
NOI
Revenue from income producing properties                        
Same property $51,462     $51,462   $49,978     $49,978  
Acquisitions 34,389     34,389   9,585     9,585  
Total revenue from income producing properties 85,851     85,851   59,563     59,563  
Property Operating Expenses                        
Same property                        
  Operating expenses 13,549     13,549   13,286     13,286  
  Utilities 6,323     6,323   5,423     5,423  
  Realty taxes 7,694   (1,746 ) 5,948   6,744   (1,054 ) 5,690  
Same property 27,566   (1,746 ) 25,820   25,453   (1,054 ) 24,399  
Acquisitions 18,861   (3,857 ) 15,004   3,358   1,025   4,383  
Total property operating expenses 46,427   (5,603 ) 40,824   28,811   (29 ) 28,782  
Net Operating Income                        
Same property 23,896   1,746   25,642   24,525   1,054   25,579  
Acquisitions 15,528   3,857   19,385   6,227   (1,025 ) 5,202  
Total Net Operating Income $39,424   $5,603   $45,027   $30,752   $29   $30,781  

Normalized net operating income increased by $14.2 million during the six months ended June 30, 2014, to $45.0 million, compared to $30.8 million in 2013.  The increase was predominantly due to the U.S. acquisitions, which increased NOI by US$12.6 million in 2014, and the change in the U.S. foreign exchange rate which increased NOI by $2.2 million.

FUNDS FROM OPERATIONS ("FFO")

     
  Three months ended
June 30,
Six months ended
June 30,
(In thousands of dollars, except per unit amounts) 2014 2013 2014 2013
Net income for the period attributable to the unitholders $2,424 $24,192 $11,536 $20,253
Add (deduct):        
Realty taxes accounted for under IFRIC 21 (2,767) (1,698) 5,603 29
Fair value (gain) loss on IPP (9,927) (900) (31,181) 3,185
Non-controlling interests' share of fair value gain on IPP 46 131 412 196
Fair value loss (gain) on Class B LP Units 12,401 (18,600) 18,257 (17,223)
Fair value loss on conversion option of convertible debentures 18 95
Distributions on Class B LP Units recorded as interest expense 2,584 2,584 5,167 5,167
Foreign exchange loss 246 215
Deferred income tax provision 6,460 2,484 12,123 2,963
         
Funds from operations $11,485 $8,193 $22,227 $14,570
         
Interest expense on convertible debentures 695 704 1,383 826
         
Diluted funds from operations $12,180 $8,897 $23,610 $15,396
         
FFO per unit - basic $0.25 $0.18 $0.48 $0.34
         
FFO per unit - diluted $0.24 $0.18 $0.47 $0.34

FFO increased by $3.3 million during the three months ended June 30, 2014, to $11.5 million ($0.25 per unit), compared to $8.2 million ($0.18 per unit) in 2013. The increase is mainly due an increase in normalized NOI of  $4.7 million, partially offset by an increase in interest expenses of $0.4 million, an increase in trust expenses of $0.7 million and a decrease in other income of $0.3 million.  The change in foreign exchange rates had a positive impact on FFO of $0.6 million.

FFO increased by $7.7 million during the six months ended June 30, 2014, to $22.2 million ($0.48 per unit), compared to $14.6 million ($0.34 per unit) in 2013. The increase is mainly due an increase in normalized NOI of  $14.2 million, partially offset by an increase in interest expenses of $4.1 million, an increase in trust expenses of $1.8 million and a decrease in other income of $0.7 million.  The change in foreign exchange rates had a positive impact on FFO of $1.3 million.

ADJUSTED FUNDS FROM OPERATIONS ("AFFO")

       
      Three months ended
June 30,
Six months ended
 June 30,
(In thousands of dollars, except per unit amounts)     2014 2013 2014 2013
Funds from Operations     $11,485 $8,193 $22,227 $14,570
             
Add (deduct):            
             
Amortization of deferred financing costs assumed on Initial Public Offering ("IPO") 244 366 493 733
Non-controlling interests' share of amortization of deferred financing costs assumed on IPO (12) (10) (24) (23)
Amortization of mark to market adjustments on mortgages     (1,941) (1,040) (3,971) (1,457)
Maintenance capital expenditures     (1,427) (1,207) (2,838) (2,014)
Amortization of cash flow hedge     54 53 108 105
Adjusted funds from operations     8,403 6,355 15,995 11,914
Interest expense on convertible debentures     695 704 1,383 826
Diluted AFFO     $9,098         $7,059 $17,378         $12,740
AFFO per unit - basic and diluted     $0.18    $0.14 $0.34    $0.28

AFFO increased by $2.0 million for the three months ended June 30, 2014, to $8.4 million ($0.18 per unit) compared to $6.4 million ($0.14 per unit) in 2013.  The increase is mainly due to an increase in FFO of $3.3 million for the three months ended June 30, 2014, partially offset by an increase in amortization of mark to market adjustments on mortgages of $0.9 million and an increase in maintenance capital expenditures of $0.2 million for the period as a result of the U.S. acquisitions completed in 2013.

AFFO increased by $4.1 million for the six months ended June 30, 2014, to $16.0 million ($0.34 per unit) compared to $11.9 million ($0.28 per unit) in 2013.  The increase is mainly due to an increase in FFO of $7.7 million for the six months ended June 30, 2014, partially offset by an increase in amortization of mark to market adjustments on mortgages of $2.5 million and an increase in maintenance capital expenditures of $0.8 million for the period as a result of the U.S. acquisitions completed in 2013.

CONFERENCE CALL DETAILS

Morguard North American Residential Real Estate Investment Trust will hold a conference call on Thursday, August 7, 2014 at 3:00 p.m. (ET) to discuss the financial results for the quarters ended June 30, 2014 and 2013. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191.  Please quote conference ID# 78880861.

About Morguard North American Residential REIT

The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario.  It trades on the Toronto Stock Exchange under the ticker symbol MRG.UN.  With a strategic focus on the acquisition of high-quality multi-unit 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 12,850 residential suites (as of August 6, 2014) located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas with an appraised value of approximately $1.7 billion at June 30, 2014.

SOURCE Morguard North American Residential Real Estate Investment Trust

For further information:


Morguard Corporation
K. (Rai) Sahi
Chief Executive Officer
(905) 281-3800

Robert Wright
Chief Financial Officer
(905) 281-3800