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MORGUARD NORTH AMERICAN RESIDENTIAL REIT

2014 ANNUAL REPORT

ENHANCING OPERATIONS

MORGUARD NORTH AMERICAN RESIDENTIAL REAL ESTATE INVESTMENT TRUST

Morguard North American Residential REIT (the “REIT”) is an open-end real estate investment trust listed on the Toronto Stock Exchange (TSX) under the symbol MRG.UN. The REIT had total assets of $1.8 billion at December 31, 2014.

The REIT was formed to own a diversified portfolio of multi-unit residential rental properties across Canada and the U.S. Its primary objectives are: to generate stable and growing cash distributions to unitholders on a tax-efficient basis; to enhance the value of its portfolio and the long-term value of its units through active asset and property management; and to expand the REIT’s asset base, primarily through acquisitions and property improvements.

Following its Initial Public Offering (“IPO”) in April 2012, the REIT has doubled its portfolio size to 12,850 suites at 44 multi-unit residential properties in North America. The real estate portfolio consists of 30 U.S. low-rise and mid-rise apartment communities located in Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas, and 14 Canadian residential apartment communities located in Alberta and Ontario.

On our cover: Barrett Walk, Kennesaw, GA

The vision and strategy were clear from the start – the REIT would achieve consistent results from a quality portfolio of multi-unit residential properties located in strategic North American markets.

And as 2014 began, the portfolio’s growth had been dramatic – having doubled from the end of 2012 to a total of 12,850 residential suites valued at approximately $1.8 billion – and had produced impressive results for unitholders.

During 2014, management focused its efforts on enhancing the operations of the properties in both Canada and the U.S., seeking synergies within the portfolio, developing new marketing programs and optimizing revenue-generating opportunities.

In the year ahead, management will continue to seek potential acquisitions, analyzing locations throughout North America where we see the most promising prospects. Our focus remains on multi-unit residential rental properties with prospects for stable returns, high occupancy rates and the potential for increased value through active management.

At the same time, we will continue to enhance the value of our portfolio and maintain our conservative approach to financing the REIT’s activities. We are confident that the combination of these approaches will drive the REIT’s ability to deliver sustainable returns to unitholders.

K. (RAI) SAHI Chairman and Chief Executive Officer

FELLOW UNITHOLDERS

Morguard North American Residential REIT recorded strong financial performance in 2014, building on its success since the IPO and confirming management’s confidence in its potential.

MORGUARD NORTH AMERICAN RESIDENTIAL REIT2

The Elmwoods, Mississauga, ON

STRONG FINANCIAL

RESULTS

DELIVER ING

2014 ANNUAL REPORT 3

FINANCIAL PERFORMANCE

Revenues from the real estate properties of Morguard North American Residential REIT rose by 22% in 2014 to a total of $174.8 million from $142.9 million the previous year. Total assets rose 10% to $1.83 billion at December 31, 2014, from $1.67 billion a year earlier.

Net operating income1 (“NOI”) increased by 23% year over year to $90.2 million. NOI is considered one of the most important metrics for a real estate investment trust as it indicates profits from the REIT’s portfolio of properties (revenue from real estate properties, less the operating expenses, property taxes and property management fees).

The REIT’s portfolio includes residential rental properties in both the U.S. and Canada. The NOI generated by the REIT’s U.S. properties totalled $54 million in 2014, compared with $36.6 million a year earlier. The increase was partially due to the full-year contribution from properties acquired in 2013 along with movement in the foreign exchange rate between U.S. and Canadian currencies. The NOI generated by the Canadian properties in 2014 was consistent with the prior year.

Funds from operations (“FFO”) is another key measure of performance. In 2014, the REIT’s basic FFO totalled $44.7 million, up from $34.7 million in 2013; diluted FFO was $47.5 million (or $0.94 per unit), compared with $36.9 million ($0.77 per unit) the year before. Adjusted funds from operations, or AFFO, reached $0.67 per unit in 2014, up from $0.58 in 2013.

As the REIT’s portfolio of properties grew from inception, so did its ability to generate revenue and net operating income – the source of dependable distributions to unitholders.

29% INCREASE IN FUNDS FROM OPERATIONS

(in millions of dollars) (in millions of dollars) (in millions of dollars)

12 12 12

$80 $41 $20

13 13 13

$143 $73 $35

14 14 14

$175 $90 $45

TOTAL REVENUE NET OPERATING INCOME1 FUNDS FROM OPERATIONS

1 Excluding impact of IFRIC 21.

23% INCREASE IN NET OPERATING INCOME1


FINANCING

A prudent approach to financing and capital management is a key element in the REIT’s strategy. Management of the REIT’s financial resources is designed to maintain sufficient capital to implement its business strategy, while complying with investment and debt restrictions and covenants.

At December 31, 2014, the REIT’s overall leverage, as represented by the ratio of total debt to gross book value, was 56%, which was unchanged from the year before. The REIT’s weighted average interest rate on mortgages and retained debt declined to 3.9% from 4.2% the year before. The weighted average term to maturity on mortgages and retained debt was 5.6 years at December 31, 2014, compared with 4.3 years at the end of 2013. Eight mortgages were renewed and one was repaid in full in 2014.

PORTFOLIO PERFORMANCE

The financial performance of Morguard North American Residential REIT relates directly to its portfolio of multi-unit residential rental properties, which is diversified across the U.S. and Canada. Today the portfolio consists of 44 properties, with a total of 12,850 suites.

The geographic distribution of the suites in the portfolio adds stability to the REIT’s cash flows as it reduces the REIT’s vulnerability to economic fluctuations that might affect any particular region.

In addition to geographic diversification, there are several other key drivers of the portfolio’s financial performance, including occupancy levels and rental rates. In turn, these are influenced by the quality of property management, the available amenities and the economic vitality of the markets where the properties are located.

Occupancy of the Canadian properties at December 31, 2014, was 98%, up from 97% a year earlier. In the U.S., occupancy remained stable at 95%. Overall rental rates also rose over the course of the year.

98% CANADIAN

OCCUPANCY

95% U.S. OCCUPANCY

PORTFOLIO DIVERSIFICATION PORTFOLIO OCCUPANCY

12

4.3%

13

4.2%

14

3.9%

U.S.62%

Canada38%

BY NUMBER OF

SUITES

WEIGHTED AVERAGE INTEREST RATE


At December 31, 2014, the average monthly rent per suite in Canada was $1,246, up from $1,232 a year earlier. For the U.S. properties, the comparable figures were US$945, up from US$916.

Management focuses on maximizing cash flow. This includes maximizing occupancy and average monthly rent, managing the REIT’s operating costs as a percentage of revenues and strengthening its asset base through infrastructure improvement and capital expenditure programs.

The REIT manages a continuous capital improvement program designed to maintain and improve the performance of the properties. It also enhances the value of the properties by allowing the REIT to charge higher rents or lower operating costs, and contributes to resident retention by ensuring that the properties remain attractive to both existing and prospective tenants.

Additionally, rental rates are constantly monitored and leasing incentives are implemented where appropriate, with the objective of maximizing revenue while reducing overall rental rate decreases.

Income lost through vacancies is not easily recovered through cost reduction, and thus tenant retention and the leasing of vacant suites are critical to maintaining occupancy levels. With the REIT’s well-located and professionally managed properties, management seeks to increase tenant loyalty and become the landlord of choice.

Strong operating performance and prudent management of its balance sheet have positioned the REIT to take advantage of opportunities as they arise. In 2014, the REIT continued to take advantage of cyclically low interest rates, and management remains focused on maintaining access to various sources of capital at the lowest possible cost.

The environment for acquisitions continues to be extremely competitive with limited supply in Canada and strong absorption of new supply in the U.S. The REIT will continue to seek acquisition opportunities, focusing on properties that meet its investment criteria.

Modest economic growth is forecasted for 2015 against a backdrop of material risk. Uncertainty about oil prices and their impact on economic growth remains; however, a strong economy and continued job growth are positive factors. To date, the outlook remains generally positive.

RETURNS TO UNITHOLDERS

A prime goal of the REIT is to provide reliable distributions to its unitholders. In 2014, the REIT paid monthly distributions to unitholders of $0.05 per unit, or $0.60 for the full year. Distributions amounted to $27.9 million for the year ended December 31, 2014, compared with $27.1 million in 2013.

The REIT believes that its units and debentures at times trade in a price range that does not adequately reflect their value in relation to the REIT’s business and its future prospects.

The REIT has TSX approval to purchase for cancellation up to 2.25 million units, and up to $5.5 million principal amount of the 4.65% Convertible Unsecured Subordinated Debentures due March 30, 2018 (TSX: MRG.DB) under a normal course issuer bid. No repurchase activity occurred in 2014.

3.2% INCREASE IN RENTAL RATES IN THE U.S.

(in millions of dollars)

12

$13.3

13

$27.1

14

$27.9

DISTRIBUTIONS


Settlers Creek, Fort Collins, CO

BROADENING A PORTFOLIO TO SPAN

A CONTINENT


11% TOTAL RETURN TO UNITHOLDERS

Since inception in 2012, the REIT has acquired a stable, diversified portfolio of revenue-producing residential properties located in two Canadian provinces and seven U.S. states. The portfolio has doubled in size due to acquisitions since 2012.

The REIT was created following an initial public offering of trust units in April 2012, which raised gross proceeds of $82.5 million, and a further offering in September 2012, which raised nearly $151 million.

Soon after the offering of trust units, the REIT began acquiring properties. First came purchases in Ontario, Alberta and Louisiana, and later the REIT began to acquire properties in Florida. By the end of 2012, its portfolio included a total of 6,376 residential suites in Canada and the U.S.

In 2013, a total of 24 multi-unit residential properties were acquired, which raised the number of the REIT’s residential suites to 12,850 – double the total of a year earlier – and expanded to Alabama, Colorado, Georgia, North Carolina and Texas.

The outcome of the REIT’s strategy is positive returns for unitholders with a cumulative total return since inception of 11%.

Margaret Place, Kitchener, ON

11 % TOTAL RETURN TO UNITHOLDERS

Growing may be the only word that adequately describes the Morguard North American Residential REIT’s portfolio – which now reaches across Canada and the United States.

IPO

2012 2012 2012 2013 20132012

$680M in

Assets

Acquired

3 U.S. Properties

Unit Offering

Unit and

Convertible Debenture Offering

$1.8B in Assets

Major U.S. Acquisitions

2014


The Forestwoods, Mississauga, ON

OPTIMIZ ING A STRONG

RESIDENTIAL RENTAL MARKET


Rental residential properties have proven to be a valuable asset class. The attractiveness of the REIT’s properties is clearly shown in the levels of occupancy rates and growth in rental rates.

THE OPPORTUNITY

Use multi-unit residential properties to generate stable and growing cash distributions on a tax-efficient basis through geographic diversification, in Canada and the U.S., reducing vulnerability to economic fluctuations.

THE VALUE PROPOSITION

In Canada, the multi-unit residential sector has a long-term record of stable and healthy income. Rental market performance is strong due to an increase in immigration and youth employment – combined with healthy economic performance. National occupancy remains on average above 97%. The investment performance outlook in Canada continues to predict peak property values with strong demand but limited supply of product.

In the U.S., the multi-unit residential sector outperformed expectations for 2014. The national occupancy rate ended the year at 95%. The rental sector was stimulated by an improved fiscal outlook, strong job gains for young adults and a sustained preference for renting.

The investment performance outlook in the U.S. calls for strong investor demand, improving property performance trends and rising valuations. Debt terms are expected to stay favourable, supporting liquidity and interest rate movements.

THE RESULT

Delivered improved performance for unitholders by leveraging different but favourable multi-unit residential markets in Canada and the U.S., resulting in a $0.19 increase in funds from operations per unit, year over year.

A disciplined acquisition strategy combined with a commitment to capital improvements and customer service will continue to provide positive returns and generate sustainable distributions for unitholders.

Governors Gate, Pensacola, FL

12

$0.64

13

$0.77

14

$0.96

FUNDS FROM OPERATIONS

Per unit – basic


210 Watermark, Bradenton, FL

ENABL ING TECHNOLOGY TO

CREATE EFFICIENCY AND RESULTS


Focusing on operational efficiencies, the REIT took advantage of existing property management software to help drive results – including increased rental rates and an improved tenant experience.

THE OPPORTUNITY

Leverage an existing investment in the property management software platform to realize operational efficiencies, increase rental rates, achieve faster conversions and improve the tenant experience.

THE VALUE PROPOSITION

Maintaining and increasing occupancy and rental rates are at the core of the REIT’s operational strategy. The REIT sought to create an optimization strategy that would:

• better manage qualified leads with faster conversion to leases by leveraging a formal lead-tracking solution in the U.S.

• optimize rental rates and control inventory in real time by implementing property management software and standardizing operations across the U.S. portfolio

• enhance the tenant interaction experience by giving prospects and tenants seamless online access to real-time rent and unit availability, lease applications and lease renewal, rent and utility bills, and maintenance requests

THE RESULT

Improved the overall tenant experience and provided online access that serves a young mobile demographic – the fastest-growing segment of the market in the U.S.

Increased rental rates by 3.2% in the U.S. while maintaining strong occupancy at 95%. This strategy will contribute to continued strong results for unitholders.

Village Crossing, West Palm Beach, FL


Rideau Towers, Toronto, ON

Mallory Square, Tampa, FL

PORTFOLIO SUMMARY

Morguard North American Residential REIT owns a well-diversified portfolio of multi-unit residential rental properties, with a total of 12,850 suites across Canada and the United States.

$1.8B REAL ESTATE PROPERTIES

12,850 SUITES

30 U.S. PROPERTIES

95% U.S. OCCUPANCY

14 CANADIAN PROPERTIES

98% CANADIAN OCCUPANCY


CANADIAN MULTI-UNIT RESIDENTIAL PORTFOLIO Ownership Interest Occupancy Property City Province (%) Suites (%)

Square 104 Edmonton AB 100 277 99

Margaret Place Kitchener ON 100 472 98

The Arista Mississauga ON 100 458 98

The Elmwoods Mississauga ON 100 321 99

The Forestwoods Mississauga ON 89 300 98

The Maplewoods Mississauga ON 87 300 98

Meadowvale Gardens Mississauga ON 100 325 98

Tomken Place Mississauga ON 100 142 100

The Valleywoods Mississauga ON 91 373 98

Rideau Towers 1 Toronto ON 90 287 98




Rouge Valley Residence Scarborough ON 100 396 98

SUBTOTAL 4,905 98

Rideau Towers, Toronto, ON

The Maplewoods, Mississauga, ON

The Valleywoods, Mississauga, ON

Square 104, Edmonton, AB


U.S. MULTI-UNIT RESIDENTIAL PORTFOLIO Ownership Interest Occupancy Property City State (%) Suites (%)

Retreat at City Center Aurora CO 100 225 95

Settlers Creek Fort Collins CO 100 229 97

Grand Venetian Irving TX 100 514 96

The Retreat at Spring Park Garland TX 100 188 94

Verandah at Valley Ranch Irving TX 100 319 97

Colonial Manor Harahan LA 100 48 98

Garden Lane Gretna LA 100 261 92

The Georgian New Orleans LA 100 135 98

Greenbrier Slidell LA 100 144 90

Magnolia Place New Iberia LA 100 148 95

Steeplechase Lafayette LA 100 192 96

Villages of Williamsburg Shreveport LA 100 194 87

Bel Air Apartment Homes Mobile AL 100 202 92

The Estates at Lafayette Square Mobile AL 100 675 96

Hampton Park Mobile AL 100 300 95

Pine Bend Mobile AL 100 152 91

Barrett Walk Kennesaw GA 100 290 97

Briarhill Apartments Atlanta GA 100 292 93

The Savoy Apartments Atlanta GA 100 232 96

Blue Isle Coconut Creek FL 100 340 98

Governors Gate I Pensacola FL 100 240 95

Governors Gate II Pensacola FL 100 204 95

Jamestown Estates Pensacola FL 100 177 93

Woodcliff Apartment Homes Pensacola FL 100 184 95

Mallory Square Tampa FL 100 383 91

Village Crossing West Palm Beach FL 100 189 98

210 Watermark Bradenton FL 100 216 97

Woodbine Apartment Homes Riviera Beach FL 100 408 99

The Lodge at Crossroads Cary NC 100 432 94

Perry Point Raleigh NC 100 432 93

SUBTOTAL 7,945 95

TOTAL MULTI-UNIT RESIDENTIAL SUITES 12,850 96

Perry Point, Raleigh, NC Retreat at City Center, Aurora, CO

Registered Office55 City Centre Drive Suite 1000Mississauga, ON L5B 1M3Tel: [email protected]

Unit ListingToronto Stock Exchange

SymbolMRG.UNMRG.DB

EligibilityRRSPRRIFDPSPRPPTFSA

AuditorsErnst & Young LLP

Principal BankersRoyal Bank of CanadaToronto-Dominion Bank

Transfer AgentComputershare Trust [email protected]

Beverley G. FlynnGeneral Counsel and Secretary

Paul MiatelloVice President

Dino Chiesa 1, 3

Principal, Chiesa Group

Mel Leiderman 1

Senior Partner, Lipton LLP

Frank Munsters 2

Corporate Director

K. (Rai) SahiChairman and Chief Executive Officer

Robert WrightChief Financial Officer

K. (Rai) Sahi 3

Chairman and Chief Executive Officer

Avtar T. Bains 2, 3

Real Estate Adviser and Investor

Investor RelationsVisit our website atwww.morguard.com or view our filings on SEDAR at www.sedar.com.

For additional information, please contact:Robert WrightChief Financial Officer

Beverley G. FlynnGeneral Counsel and Secretary

Tel: [email protected]

John TalanoVice President, Operations (U.S.)

Brian AtheyVice President, Operations (Canada)

Bruce K. Robertson 1, 3

Vice President, InvestmentsThe Woodbridge Company Limited

William O. Wallace 2

President, Wallace Automotive Inc.

Annual MeetingWednesday, May 13, 2015at 9:00 a.m. Rattlesnake Point Golf Club5407 Regional Road 25Milton, ON L9T 2X5

1 Audit Committee2 Compensation and Governance Committee3 Investment Committee

INVESTOR INFORMATION

EXECUTIVE DIRECTORY

BOARD OF TRUSTEES

CORPORATE INFORMATION

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The selected annual financial information in the 2014 Annual Report highlights certain key metrics for the REIT. As a result, this Report should be read in conjunction with the REIT’s Consolidated Financial Statements for the year ended December 31, 2014, related Management’s Discussion and Analysis (“MD&A”) and the Annual Information Form (“AIF”).

These documents are available on the REIT’s website at www.morguard.com. All continuous disclosure documents required by securities regulators are also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed electronically at www.sedar.com.

55 City Centre DriveSuite 1000Mississauga, ON L5B 1M3905-281-4800

MORGUARD.COM

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