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Morguard North American Residential REIT Announces 2017 First Quarter Results

T.MRG.DB.B | May 2, 2017

Canada NewsWire

MISSISSAUGA, ON, May 2, 2017

MISSISSAUGA, ON, May 2, 2017 /CNW/ - Morguard North American Residential REIT (the "REIT") (TSX: MRG.UN) today announced its financial results for the three months ended March 31, 2017.

First Quarter Highlights

The REIT is reporting performance of:

Adjusted net operating income ("Adjusted NOI") of $29.4 million for the three months ended March 31, 2017, an increase of $0.9 million, or 3.3% compared to 2016.
Basic funds from operations ("FFO") of $15.3 million for the three months ended March 31, 2017, an increase of $1.3 million, or 9.0% over the same period in 2016.
Basic FFO of $0.30 per Unit for the three months ended March 31, 2017 and 2016.
FFO payout ratio for the three months ended March 31, 2017 of 52.9%.

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.

On February 1, 2017, the REIT repaid on maturity, four mortgages in the amount of $59.3 million (US$45.3 million) secured by four multi-suite residential properties located in Mobile, Alabama.

Financial and Operational Highlights

As at	March 31,	December 31,	March 31,
(In thousands of dollars, except as noted otherwise)	2017	2016	2016
Operational Information
Number of properties	46	46	46
Total suites	13,472	13,472	13,472
Occupancy percentage	95.6%	95.2%	95.0%
Average monthly rent - Canada (in actual dollars)	$1,301	$1,296	$1,273
Average monthly rent - U.S. (in actual U.S. dollars)	US$1,043	US$1,038	US$1,011

Summary of Financial Information
Gross book value	$2,293,570	$2,285,727	$2,141,201
Indebtedness	$1,165,776	$1,237,613	$1,199,692
Indebtedness to gross book value ratio	51%	54%	56%
Weighted average mortgage interest rate	3.6%	3.6%	3.7%
Weighted average term to maturity on mortgages payable (years)	5.7	5.7	5.3
Exchange rates - Canadian dollar to United States dollar	$0.75	$0.74	$0.77
Exchange rates - United States dollar to Canadian dollar	$1.33	$1.34	$1.30

For the three months ended March 31
(In thousands of dollars, except per Unit amounts)	2017	2016
Summary of Financial Information
Interest coverage ratio	2.25	1.97
Indebtedness coverage ratio	1.53	1.36
Revenue from income producing properties	$55,621	$54,354
NOI	$16,917	$16,272
Adjusted NOI	$29,426	$28,482
Same Property Adjusted NOI	$28,659	$28,020
Net operating margin	53%	52%
FFO - basic	$15,277	$14,019
FFO - diluted	$15,965	$14,713
FFO per Unit - basic	$0.30	$0.30
FFO per Unit - diluted	$0.29	$0.29
Distributions per Unit	$0.16	$0.15
FFO payout ratio	52.9%	49.8%
Weighted average number of Units outstanding (in thousands):
Basic	50,499	46,528
Diluted	54,370	50,399
Average exchange rates - Canadian dollar to United States dollar	$0.76	$0.73
Average exchange rates - United States dollar to Canadian dollar	$1.32	$1.37

Net Operating Income

For the three months ended March 31
(In thousands of dollars)		2017	2016
Revenue from income producing properties
Same Property		$54,081	$53,419
Acquisitions		1,540	935
Total revenue from income producing properties		55,621	54,354
Property operating expenses
Same Property
	Operating costs	14,002	14,110
	Realty taxes	18,903	18,411
	Utilities	5,026	5,088
Same Property		37,931	37,609
Acquisitions		773	473
Total property operating expenses		38,704	38,082
NOI
Same Property		16,150	15,810
Acquisitions		767	462
Total NOI		16,917	16,272
Realty taxes accounted for under IFRIC 21		12,509	12,210
Adjusted NOI		$29,426	$28,482

For the three months ended March 31, 2017, consolidated Adjusted NOI increased by $0.9 million (or 3.3%) to $29.4 million, compared to $28.5 million in 2016. The increase was due to a higher Adjusted NOI in Canada and the U.S. of $0.6 million (or 6.2%) and US$0.7 million (or 5.4%), respectively, partially offset by the change in the U.S. foreign exchange rate, which decreased Adjusted NOI by $0.4 million. The increase in Adjusted NOI was attributable to an acquisition completed during the three months ended March 31, 2016 and an increase in Same Property NOI in Canada and the U.S. mainly driven by higher rental revenue, partially offset by an increase in overall operating expenses.

Funds from Operations

For the three months ended March 31
(In thousands of dollars, except per Unit amounts)	2017	2016
Net income (loss) attributable to unitholders	$2,028	($24,445)

Add (deduct):
Realty taxes accounted for under IFRIC 21	11,892	11,674
Fair value loss on conversion option on the Debentures	879	124
Distributions on Class B LP Units recorded as interest expense	2,756	2,583
Foreign exchange loss	190	1,246
Fair value gain on income producing properties, net	(23,351)	(6,189)
Non-controlling interests' share of fair value gain on income producing properties	695	311
Fair value loss on Class B LP Units	20,324	21,013
Deferred income tax provision (recovery)	(136)	7,702
FFO – basic	$15,277	$14,019
Interest expense on the Debentures	688	694
FFO – diluted	$15,965	$14,713
FFO per Unit – basic	$0.30	$0.30
FFO per Unit – diluted	$0.29	$0.29

Basic FFO for the three months ended March 31, 2017, increased by $1.3 million, or 9.0%, to $15.3 million ($0.30 per Unit), compared to $14.0 million ($0.30 per Unit) in 2016. The increase is mainly due to an increase in Adjusted NOI of $0.9 million, an increase in other income of $0.2 million and a decrease in interest expense of $0.3 million (excluding distributions on Class B LP Units and fair value loss on conversion option on the Debentures), partially offset by an increase in trust expenses of $0.1 million. The change in foreign exchange rates had a negative impact on FFO of $0.4 million.

Excluding the impact of the offering, basic FFO per unit amounted to $0.32 per Unit for the three months ended March 31, 2017. The impact includes the dilution from additional Units of the offering offset by two months of interest savings on the repayment of mortgages on February 1, 2017.

Subsequent Event
The REIT entered into a binding agreement to acquire a newly-constructed property comprising 60 rental townhomes located in Toronto, Ontario, for a gross purchase price of $15.8 million. The acquisition is expected to close during the second quarter of 2017.

The REIT's unaudited condensed consolidated financial statements for the three months ended March 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, 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 months ended March 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, May 4, 2017 at 3:00 p.m. (ET) to discuss the financial results for the three months ended March 31, 2017 and 2016. To participate in the conference call, please dial 647-427-7450 or 1-888-231-8191. Please quote conference ID # 2341221.

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 13,472 residential suites (as of May 2, 2017) located in Alberta, Ontario, Colorado, Texas, Louisiana, Alabama, Georgia, Florida and North Carolina with an appraised value of approximately $2.2 billion as at March 31, 2017. For more information, visit the REIT's website at www.morguard.com .