– Continued rent increases, strong occupancy, portfolio expansion and operating efficiencies drive Year-Over-Year Q1 2016 AFFO growth of 27.1% and total and samestore NOI growth of 31.8% and 7.9%, respectively –
– 37.4% Year-over-Year Increase in Investment Properties –
TORONTO and DALLAS, May 9, 2016 /CNW/ – Milestone Apartments Real Estate Investment Trust (TSX: MST.UN) (“Milestone” or the “REIT”) today announced its financial results for the first quarter ended March 31, 2016 (“Q1 2016”). All dollar amounts are in U.S. currency unless otherwise noted. References to “samestore” correspond to properties the REIT has owned for equivalent periods in 2016 and 2015, thus removing the impact of acquisitions and dispositions.
“Our strong first quarter results reflect our continued successful execution in generating organic growth and in deploying accretive capital in our U.S. Sunbelt markets to further expand, diversify and enhance our property portfolio. The completion of our acquisition of the 15-property Landmark portfolio (the “Landmark Portfolio”) on January 27, 2016 represents the REIT’s largest transaction to date, adding 4,172 units to our portfolio and contributing to a 37.4 percent year-over-year increase in investment properties,” said Robert Landin, CEO of Milestone. “Looking ahead, we expect strong U.S. mid-market renter demand to continue in 2016 and beyond, supported by an improving U.S. economy and job market, and favorable demographic and domestic migration trends, particularly in our markets.”
Q1 2016 Financial Highlights
- Total and samestore average monthly in-place rents were $917 and $883, respectively, up 11.8% and 6.4% from the first quarter ended March 31, 2015 (“Q1 2015”);
- Total and samestore occupancy remained strong ending Q1 2016 at 95.4% and 95.8%, respectively;
- Total and samestore property revenue were $63.4 million and $47.2 million, respectively, up 26.8% and 5.5% from Q1 2015;
- Total and samestore net operating income (“NOI”) were $36.2 million and $26.9 million, respectively, up 31.8% and 7.9% from Q1 2015. Total and samestore NOI margins were 57.1% and 57.0%, respectively, up 220 and 130 basis points from Q1 2015;
- Funds from operations (“FFO”) totalled $19.4 million, up 18.1% from Q1 2015. Adjusted funds from operations (“AFFO”) increased 27.1% to $18.1 million. Basic FFO and AFFO per unit were $0.26 and $0.25, respectively, compared to $0.27 and $0.23 in Q1 2015. Diluted FFO and AFFO per unit were $0.25 and $0.24, respectively, compared to $0.26 and $0.23 in Q1 2015. FFO and FFO per unit for Q1 2016 were adversely impacted by one-time prepayment penalties incurred from payoffs of mortgage notes payable related to the acquisition of the Landmark Portfolio on January 27, 2016. Diluted FFO and AFFO per unit for Q1 2016 were adversely affected by subscription receipts issued in October 2015 but not converted into REIT units until the REIT completed the acquisition of the Landmark Portfolio, as well as increased non-cash deferred unit expense mainly driven by an increase in the REIT’s unit price in U.S. dollars during the period;
- FFO and AFFO payout ratios were 60% and 64%, respectively, compared to 49% and 57% in Q1 2015. FFO and AFFO payout ratios for Q1 2016 were adversely impacted by distributions declared and paid in the quarter related to the subscription receipts issued in connection with the acquisition of the Landmark Portfolio, as well as by the recent increase in annual distributions to unitholders from C$0.65 to $0.55. Absent the distributions paid in the quarter related to the subscription receipts, the normalized FFO and AFFO payout ratios for Q1 2016 were 54% and 58%, respectively;
- Improved financial leverage ending Q1 2016 at 49.9% compared to financial leverage of 51.6% at the end of Q1 2015; and
- Investment properties of $2.39 billion at the end of Q1 2016, a 37.4% increase compared to investment properties of $1.74 billion at the end of Q1 2015.
Q1 2016 Business Highlights
- Completed the acquisition of the Landmark Portfolio on January 27, 2016 for a purchase price of $493.5 million, excluding acquisition costs and related fees;
- Converted 9,591,000 subscription receipts into REIT units. The subscription receipts were initially sold in October 2015 in connection with the acquisition of the Landmark Portfolio, on a bought deal basis, at a price of C$15.00 per subscription receipt for gross proceeds of C$143.9 million;
- Completed the sales of four properties for combined gross proceeds of approximately $111 million, as part of the REIT’s strategy to optimize cash flow performance through strategic acquisitions and dispositions;
- Milestone added to the S&P/TSX Composite Index;
- Completed, together with MileSouth Apartment Portfolio LP, an affiliated entity of Invesco Ltd. (“MileSouth”), a secondary offering of 11,000,000 units on a bought deal basis at a price of C$16.50 per unit for total gross proceeds of C$181.5 million. The entirety of the proceeds were used to reduce MileSouth’s ownership interest in the REIT to approximately 1.1%, down from 15.6% prior to the offering; and
- Declared total cash distributions to REIT unitholders, Class B unitholders and subscription receipt holders of $11.5 million.
Subsequent Events
- Entered into a definitive agreement to acquire Advenir at Mission Ranch (“Mission Ranch”), a 295-unit multifamily apartment community located in East Dallas, Texas, for a purchase price of $34.0 million, representing an estimated year one capitalization rate of 6.67% (the “Acquisition”). The Acquisition is expected to be accretive to the REIT.
|
Q1 2016 & Q1 2015 Financial Results Summary |
|||
|
(US$000s, except per unit amounts) |
Q1 2016 |
Q1 2015 |
Change |
|
Rents, Samestore |
883 |
830 |
6.4% |
|
Rents, Total |
917 |
820 |
11.8% |
|
Occupancy, Samestore |
95.8% |
96.0% |
-20 bp |
|
Occupancy, Total |
95.4% |
95.8% |
-40 bp |
|
Revenue, Samestore |
47,171 |
44,724 |
5.5% |
|
Revenue, Non-samestore |
16,192 |
5,237 |
209.2% |
|
Revenue, Management Company |
2,265 |
1,583 |
43.1% |
|
Revenue, Total |
65,628 |
51,544 |
27.3% |
|
Operating Expenses, Samestore |
36,387 |
35,103 |
3.7% |
|
Operating Expenses, Non-samestore |
7,078 |
4,138 |
71.0% |
|
Operating Expenses, Management Company |
1,812 |
1,393 |
30.1% |
|
Operating Expenses, Total(1) |
45,277 |
40,634 |
11.4% |
|
Property Revenue, Samestore |
47,171 |
44,724 |
5.5% |
|
Property Revenue, Non-samestore |
16,192 |
5,237 |
209.2% |
|
Property Revenue, Total(2) |
63,363 |
49,961 |
26.8% |
|
Property Operating Expenses, Samestore |
20,271 |
19,802 |
2.4% |
|
Property Operating Expenses, Non-samestore |
6,926 |
2,718 |
154.8% |
|
Property Operating Expenses, Total(2,3) |
27,197 |
22,520 |
20.8% |
|
NOI, Samestore |
26,900 |
24,922 |
7.9% |
|
NOI, Non-samestore |
9,266 |
2,519 |
267.8% |
|
NOI, Total(2,3) |
36,166 |
27,441 |
31.8% |
|
NOI Margin, Samestore |
57.0% |
55.7% |
130 bp |
|
NOI Margin, Non-samestore |
57.2% |
48.1% |
910 bp |
|
NOI Margin, Total(2,3) |
57.1% |
54.9% |
220 bp |
|
FFO |
19,362 |
16,388 |
18.1% |
|
FFO Per Unit, Basic(4) |
0.26 |
0.27 |
-0.01 |
|
FFO Per Unit, Diluted(5) |
0.25 |
0.26 |
-0.01 |
|
FFO Payout Ratio(6) |
60% |
49% |
11% |
|
AFFO |
18,122 |
14,254 |
27.1% |
|
AFFO Per Unit, Basic(4) |
0.25 |
0.23 |
0.02 |
|
AFFO Per Unit, Diluted(5) |
0.24 |
0.23 |
0.01 |
|
AFFO Payout Ratio(6) |
64% |
57% |
7% |
|
Total Distributions Declared(7) |
11,543 |
8,088 |
42.7% |
|
Debt to gross book value |
49.9% |
51.6% |
-170 bp |
|
(1) |
Includes real estate tax adjustments related to IFRIC 21. |
|
(2) |
Excludes third-party property management revenue and related expenses. |
|
(3) |
Excludes real estate tax adjustments related to IFRIC 21. |
|
(4) |
Basic FFO and AFFO per unit are calculated by dividing total FFO and AFFO for the respective periods by the amount of the total weighted average number of outstanding REIT and Class B units for Q1 2016 (73,137,132) and Q1 2015 (61,581,738). |
|
(5) |
Diluted FFO and AFFO per unit are calculated by dividing total FFO and AFFO for the respective periods by the amount of the total weighted average number of outstanding REIT units, Class B units, subscription receipts and options for Q1 2016 (76,369,809) and Q1 2015 (61,850,454). |
|
(6) |
FFO and AFFO Payout ratios are calculated by dividing the amount of REIT unitholders, Class B unitholders and Subscription receipt holders distributions declared, by FFO and AFFO for the respective period. Distributions on REIT units, Class B units and Subscription receipt units are translated based on an average CAD to USD exchange rate for the respective period, consistent with IFRS, as applicable. |
|
(7) |
Represents total cash distributions declared to REIT unitholders, Class B unitholders and subscription receipt holders for the period. |
Q1 2016 Financial Results
Total and samestore property revenue were $63.4 million and $47.2 million, respectively, up 26.8% and 5.5% from Q1 2015. The increase in total and samestore property revenue is attributable to continued strong occupancy, organic rent growth and growth from acquisitions completed subsequent to Q4 2014.
Total and samestore property operating expenses were $27.2 million and $20.3 million, respectively, up 20.8% and 2.4% from Q1 2015. The increase in total and samestore property operating expenses is primarily attributable to higher real estate tax estimates and expenses related to the operations of properties acquired subsequent to Q4 2014.
Total and samestore NOI were $36.2 million and $26.9 million, respectively, up 31.8% and 7.9% from Q1 2015. Total and samestore NOI margins were 57.1% and 57.0%, respectively, up 220 and 130 basis points from Q1 2015. The increase in total and samestore NOI and NOI margins is primarily attributable to higher property revenue and continued operating efficiencies achieved through greater economies of scale as Milestone continues to strategically grow the REIT’s platform.
FFO and AFFO of $19.4 million and $18.1 million, respectively, were up 18.1% and 27.1% from Q1 2015. FFO and AFFO growth were attributable to higher property revenue and NOI during the quarter, as noted above. Basic FFO and AFFO per unit were $0.26 and $0.25, respectively, compared to $0.27 and $0.23 in Q1 2015. Diluted FFO and AFFO per unit were $0.25 and $0.24, respectively, compared to $0.26 and $0.23 in Q1 2015. FFO and FFO per unit for Q1 2016 were adversely impacted by one-time prepayment penalties incurred from payoffs of mortgage notes payable related to the acquisition of the Landmark Portfolio. Diluted FFO and AFFO per unit for Q1 2016 were adversely affected by subscription receipts issued in October 2015 but not converted into REIT units until the REIT completed the acquisition of the Landmark Portfolio, as well as increased non-cash deferred unit expense mainly driven by an increase in the REIT’s unit price in U.S. dollars during the period.
Fair Value on Investment Properties
As at March 31, 2016, the REIT’s properties were valued using an overall weighted capitalization rate of 6.25% (December 31, 2015 â 6.38%). There were $45.2 million of fair value gains recognized in Q1 2016 primarily resulting from increased NOI forecasts. Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates.
Cash Distributions
Cash distributions declared to REIT unitholders, Class B unitholders and subscription receipt holders of the REIT’s operating partnership were $11.5 million in Q1 2016, representing FFO and AFFO payout ratios of 60% and 64%, respectively, compared to declared distributions of $8.1 million in Q1 2015, representing FFO and AFFO payout ratios of 49% and 57%. FFO and AFFO payout ratios for Q1 2016 were adversely impacted by distributions declared and paid in the quarter related to the subscription receipts issued in connection with the acquisition of the Landmark Portfolio, as well as by the increase in annual distributions to unitholders from C$65 to $0.55. Absent the distributions paid in the quarter related to the subscription receipts, the normalized FFO and AFFO payout ratios for Q1 2016 were 54% and 58%, respectively.
Liquidity and Capital Structure
As at March 31, 2016, the REIT had cash and cash equivalents of $21.0 million and a $100.0 million revolving line of credit (with an option to increase the line to $125.0 million). As at May 9, 2016, the REIT had drawn $10 million on its line of credit related to the acquisition of the Landmark Portfolio and ongoing working capital needs. The REIT ended the period with mortgage notes payable carrying value of $1.2 billion with 85.2% issued at fixed rates, a weighted average interest rate of 3.64% and a weighted average maturity of approximately 6.5 years. The REIT’s debt to gross book value ended Q1 2016 at 49.9%.
Units Outstanding
As at May 9, 2016, there were 70,039,063 REIT units and 5,779,424 Class B units outstanding.
Mission Ranch Property Acquisition
Built in 2000, Mission Ranch is approximately 96% occupied, with average monthly rents of approximately $1,050. The property includes one, two and three-bedroom floor plan that feature spacious living areas, nine-foot ceilings, modern design, and gourmet kitchens. Mission Ranch also features a robust amenity package, driving the property to compete at the top level of its submarket. Substantially all of the amenities at Mission Ranch have been updated in the last two to three years and include a clubhouse with business area, fitness center, recreation room, pool table and kitchen, resort style pool with outdoor kitchen and playground. Mission Ranch is centrally located within the Dallas/Fort Worth metropolitan area. There are several employment centers in close proximity to the property, including Baylor University Medical Center and the Dallas Central Business District. The property is also located near Town East Shopping Mall and the local school district, which employs over 4,000 people. The new FedEx shipping hub, which is expected to be completed in 2017, is located less than five miles from the property, and will create an estimated 500 new jobs.
Mission Ranch Acquisition Funding and Closing
The Acquisition, which is subject to customary closing conditions, is expected to close by July 31, 2016. The REIT will disclose the final details of the purchase, including financing terms, following closing of the Acquisition.
Conference Call
Robert Landin, CEO, Steve Lamberti, COO, and Ryan Newberry, CFO, will host a conference call for the investment community tomorrow, Tuesday, May 10, 2016 at 9:00 a.m. (ET). The call-in numbers for participants are 416-764-8688 or 888-390-0546. A live webcast of the call will be archived on Milestone’s website at www.milestonereit.com/investor-relations/events-presentations.
A replay of the call will be available until Tuesday, May 17, 2016. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 843306). The webcast will be archived on Milestone’s website.
Annual & Special Meeting
Milestone will host its Annual & Special Meeting on Tuesday, May 10, 2016, at 10:00 a.m. (ET) at the offices of Goodmans LLP, which are located at 333 Bay Street, Suite 3400, in Toronto.
Interim Filings
The REIT’s Management’s Discussion and Analysis and Consolidated Financial Statements have been filed on SEDAR and can be viewed at www.sedar.com, or on the REIT’s website at www.milestonereit.com.
About Milestone
Milestone is an unincorporated, open-ended real estate investment trust that is governed by the laws of Ontario. The REIT’s portfolio consists of 72 multifamily garden-style residential properties, comprising 22,546 apartment units that are located in 14 major metropolitan markets throughout the Southeast and Southwest United States. Milestone is the largest real estate investment trust listed on the TSX focused solely on the United States multifamily sector. The REIT operates its portfolio through its internal property management company, Milestone Management, LLC, which has approximately 1,500 employees and manages more than 50,000 apartment units across the United States. Based in Dallas, TX, TMG Partners, L.P., an affiliate of The Milestone Group, LLC, is the external asset manager of the REIT. For more information, please visit www.milestonereit.com.
About The Milestone Group, LLC
The Milestone Group is a privately-held real estate investment management company with expertise and presence in major metropolitan markets throughout the United States. The firm has corporate offices in Dallas, Texas and New York, New York with regional acquisition and management offices across the United States. Founded in 2004, The Milestone Group has a strong track record of investing in the U.S. multifamily sector, including completion of approximately US$10 billion in multifamily transactions. For more information, please visit www.milestonegp.com.
Non-IFRS Financial Measures
This press release contains certain non-IFRS financial measures including FFO, AFFO and NOI, and related amounts to measure, compare and explain the operating results and financial performance of the REIT. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. However, they do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. Please refer to the REIT’s Management’s Discussion and Analysis for the first quarter ended March 31, 2016 for a reconciliation of NOI, FFO and AFFO to standardized IFRS measures.
Forward-looking Information
This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the REIT and the environment in which it operates. Forward-looking statements are identified by words such as “believe”, “anticipate”, “expect”, “intend”, “plan”, “will”, “may” and other similar expressions. Some of the specific forward-looking statements in this news release include, but are not limited to, statements with respect to the REIT’s financial performance, the future performance of the U.S. multifamily sector and the U.S. economy. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under the heading “Risk Factors” in the REIT’s annual information form available at www.sedar.com. The forward-looking statements in this news release are based on certain assumptions. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
SOURCE Milestone Apartments REIT
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