Morguard North American Residential REIT Announces 2018 First Quarter Results

MISSISSAUGA, ON, May 1, 2018 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2018.

First Quarter Highlights

The REIT is reporting first quarter performance of:

• Net operating income ("NOI") of $17.1 million for the three months ended March 31, 2018, an increase of $0.2 million, or 1.1% compared to 2017.
  
  
• Proportionate net operating income ("Proportionate NOI") of $30.2 million for the three months ended March 31, 2018, an increase of $1.5 million, or 5.1% compared to 2017.
  
  
• Net income of $80.4 million for the three months ended March 31, 2018, an increase of $77.9 million compared to 2017. The increase was primarily due to higher non-cash changes to fair value on income producing properties and fair value on Class B LP Units compared to 2017, partially offset by an increase in deferred income tax compared to 2017.
  
  
• Basic funds from operations ("FFO") of $14.7 million for the three months ended March 31, 2018, a decrease of $0.5 million, or 3.5% over the same period in 2017.
  
  
• Basic FFO of $0.29 per Unit for the three months ended March 31, 2018, a 3.3% decrease as compared to the $0.30 per Unit in 2017.
  
  
• FFO payout ratio for the three months ended March 31, 2018 of 57.0%.

The REIT is reporting the following corporate highlights:

• On February 13, 2018, the REIT issued $75.0 million principal amount of 4.50% convertible unsecured subordinated debentures maturing on March 31, 2023. On February 21, 2018, an additional principal amount of $10.5 million was issued pursuant to the exercise of the over-allotment option.
  
  
• On February 26, 2018, the REIT redeemed the remaining $60.0 million of its outstanding 4.65% convertible unsecured subordinated debentures in advance of their March 30, 2018 maturity date.

Financial and Operational Highlights

As at (In thousands of dollars, except as noted otherwise)	March 31, 2018	December 31, 2017	March 31, 2017
Operational Information
Number of properties	46	46	46
Total suites	13,314	13,314	13,472
Occupancy percentage	95.1%	94.4%	95.6%
Average monthly rent - Canada (in actual dollars)	$1,336	$1,327	$1,299
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,211	US$1,203	US$1,033
Summary of Financial Information
Gross book value	$2,766,375	$2,651,097	$2,293,570
Indebtedness	$1,388,655	$1,363,228	$1,165,776
Indebtedness to gross book value ratio	50%	51%	51%
Weighted average mortgage interest rate	3.5%	3.5%	3.6%
Weighted average term to maturity on mortgages payable (years)	6.0	6.2	5.7
Exchange rates - United States dollar to Canadian dollar	$1.29	$1.25	$1.33

For the three months ended March 31 (In thousands of dollars, except per Unit amounts)	2018	2017
Summary of Financial Information
Interest coverage ratio	2.17	2.25
Indebtedness coverage ratio	1.54	1.53
Revenue from income producing properties	$58,094	$55,621
NOI	$17,110	$16,917
Proportionate NOI	$30,185	$28,710
Same Property Proportionate NOI	$27,255	$26,899
NOI margin - IFRS	29.5%	30.4%
NOI margin - Proportionate	53.8%	52.9%
Net income	$80,406	$2,510
FFO - basic	$14,749	$15,277
FFO - diluted	$15,662	$15,965
FFO per Unit - basic	$0.29	$0.30
FFO per Unit - diluted	$0.28	$0.29
Distributions per Unit	$0.165	$0.160
FFO payout ratio	57.0%	52.9%
Weighted average number of Units outstanding (in thousands):
Basic	50,918	50,499
Diluted	55,491	54,370
Average exchange rates - United States dollar to Canadian dollar	$1.26	$1.32

Net Income

Net income of $80.4 million for the three months ended March 31, 2018, increased by $77.9 million compared to $2.5 million in 2017. The increase in net income was primarily due to the following:

• An increase in net operating income of $0.2 million;
  
  
• An increase in interest expense of $0.5 million;
  
  
• An increase in trust expenses of $0.1 million;
  
  
• An increase in equity income from investment of $0.7 million;
  
  
• An increase in foreign exchange gain of $0.9 million;
  
  
• A decrease in other income of $0.3 million;
  
  
• An increase in net fair value gain on income producing properties of $48.1 million;
  
  
• An increase in fair value gain on Class B LP Units of $43.9 million; and
  
  
• An increase in income taxes (current and deferred) of $15.0 million.

Net Operating Income

For the three months ended March 31, 2018, NOI from the REIT's properties increased by $0.2 million (or 1.1%) to $17.1 million, compared to $16.9 million in 2017. The increase in NOI is due to an increase in Same Property NOI of $0.2 million (or 1.3%). The Same Property increase of $0.2 million is due to an increase in Canada of $1.1 million (or 9.8%), a decrease in the U.S. of US$0.3 million (or 8.4%) and the change in foreign exchange rate which decreased NOI by $0.5 million.

For the three months ended March 31, 2018, Proportionate NOI from the REIT's properties increased by $1.5 million (or 5.1%) to $30.2 million, compared to $28.7 million in 2017. The increase in Proportionate NOI is due to an increase in Same Property Proportionate NOI of $0.4 million (or 1.3%) and from acquisitions net of the disposal of properties of $1.1 million. The Same Property increase of $0.4 million is due to an increase in Canada of $1.0 million (or 9.8%), an increase in the U.S. of US$0.1 million (or 0.2%) and the change in foreign exchange rate which decreased Proportionate NOI by $0.7 million.

Funds From Operations

Basic FFO for the three months ended March 31, 2018, decreased by $0.5 million, or 3.5%, to $14.7 million ($0.29 per Unit), compared to $15.3 million ($0.30 per Unit) in 2017. The decrease is mainly due to an increase in interest expense of $1.9 million (excluding distributions on Class B LP Units and fair value adjustments on the conversion option on the convertible debentures), an increase in trust expenses of $0.1 million, and a decrease in other income of $0.3 million, partially offset by higher Proportionate NOI of $1.5 million.

Basic FFO per Unit for the three months ended March 31, 2018, decreased by $0.01 to $0.29 per Unit, compared to $0.30 per Unit. The change in the foreign exchange rate had a $0.01 per Unit negative impact.

Subsequent Events

Subsequent to March 31, 2018, the REIT completed the refinancing of two U.S. multi-suite residential properties in the amount of US$62.2 million at a weighted average interest rate of 4.07% for a term of 10 years.

On April 5, 2018, the REIT acquired a property comprising 116 suites located in New Orleans, Louisiana, for a purchase price of $14.6 million (US$11.4 million), excluding closing costs. The property, to be 100% vacant by May 31, 2018, is designated as a property under development and the REIT plans to complete significant capital upgrades during the remainder of 2018, at which point initial lease up will commence.

The REIT's unaudited condensed consolidated financial statements for the three months ended March 31, 2018, 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 condensed 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 three months ended March 31, 2018 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, May 3, 2018 at 3:00 p.m. (ET) to discuss the financial results for the three months ended March 31, 2018 and 2017. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID # 9288758.

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 13,430 residential suites (as of May 1, 2018) located in Alberta, Ontario, Colorado, Texas, Louisiana, Illinois, Georgia, Florida, North Carolina, Virginia and Maryland with an appraised value of approximately $2.7 billion at March 31, 2018. For more information, visit the REIT's website at www.morguard.com.

SOURCE Morguard North American Residential Real Estate Investment Trust

Morguard North American Residential REIT: K. Rai Sahi, Chief Executive Officer, [phone]; Robert Wright, Chief Financial Officer, [phone]

Related Links

www.morguard.com