– Continued rent growth, increased scale and portfolio expansion drive year-over-year Q2 2016 AFFO growth of 28.6% and total and samestore NOI increases of 31.5% and 11.1%, respectively –
TORONTO and DALLAS, Aug. 11, 2016 /CNW/ – Milestone Apartments Real Estate Investment Trust (TSX: MST.UN) (“Milestone” or the “REIT”) today announced its financial results for the second quarter ended June 30, 2016 (“Q2 2016”) and the six-month period ended June 30, 2016 (“YTD 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 continued strong operating performance reflects the focused execution of our organic and external growth strategies as we capitalize on the fundamental strength of our business of servicing the middle-market renter segment in our U.S. Sunbelt markets, which are projected to continue to benefit from above average employment and population growth, and positive demographic trends,” said Robert Landin, CEO of Milestone.
“During the quarter and subsequent to quarter end, we undertook two initiatives to further enhance unitholder value. We made a strategic $50 million commitment to The Milestone Group’s fourth value-add fund. This investment will further expand and diversify the REIT’s asset base with exposure to the value-add multifamily segment on a no fee/no promote basis, and our expected returns will be enhanced by the REIT’s right to provide property management services to the fund. We also announced the internalization of the REIT’s asset management function, which upon completion is expected to immediately increase the REIT’s AFFO per unit by approximately 4% and create greater alignment of interest between the REIT and its senior management team,” added Mr. Landin.
Q2 2016 Financial Highlights
- Total and samestore average monthly in-place rents were $933 and $900, respectively, up 11.5% and 6.5% from the second quarter ended June 30, 2015 (“Q2 2015”);
- Total and samestore occupancy remained strong both ending Q2 2016 at 95.2%;
- Total and samestore property revenue were $66.9 million and $48.4 million, respectively, up 26.2% and 6.0% from Q2 2015;
- Total and samestore net operating income (“NOI”) were $38.5 million and $28.2 million, respectively, up 31.5% and 11.1% from Q2 2015. Total and samestore NOI margins were 57.5% and 58.3%, respectively, up 240 and 260 basis points from Q2 2015;
- Funds from operations (“FFO”) totalled $21.3 million, up 23.1% from Q2 2015. Adjusted funds from operations (“AFFO”) increased 28.6% to $19.2 million. Diluted FFO and AFFO per unit were $0.28 and $0.25, respectively, up from $0.27 and $0.23 in Q2 2015. FFO and AFFO for Q2 2016 were adversely affected by a $0.9 million increase in deferred units expense compared to Q2 2015 due to an increase in the REIT’s unit price in U.S. dollars during the period;
- FFO and AFFO payout ratios were 49% and 54%, respectively, compared to 50% and 58% in Q2 2015;
- Financial leverage ended Q2 2016 at 48.9% compared to financial leverage of 47.8% at the end of Q2 2015; and
- Investment properties increased 32.9% to $2.42 billion at the end of Q2 2016, compared to investment properties of $1.82 billion at the end of Q2 2015.
Q2 2016 Business Highlights
- Entered into an agreement to invest $50.0 million in Milestone Real Estate Investors IV, LP, a private discretionary equity investment fund focused on value-add multifamily investments that is sponsored by The Milestone Group, LLC, an affiliate of the REIT’s asset manager;
- Strengthened the REIT’s balance sheet by refinancing mortgages on Summer Meadows and Summers Crossing, two properties located in Dallas, Texas, by entering into two new 10-year interest only fixed-term mortgages for a combined loan balance of approximately $46.2 million with an average interest rate of 3.52% and an average loan maturity of June 2026. The excess loan proceeds of $21.5 million were used to pay off debt on four other Milestone properties with no prepayment penalties, increasing the REIT’s unencumbered asset pool from one to five assets; and
- Declared total cash distributions to REIT unitholders and Class B unitholders of $10.4 million.
Subsequent Events
- Entered into an agreement to internalize the REIT’s asset management function (the “Internalization” or the “Transaction”), with closing of the Internalization expected to occur on September 30, 2016, subject to unitholder approval and other customary conditions. As a result of the Transaction, the annual asset management fee and incentive fee will be eliminated resulting in a reduction in the REIT’s annual G&A expenses by approximately $9.5 million and in an expected increase in the REIT’s annual AFFO per unit of approximately 4%. At the close of the Internalization, the Milestone senior management team is expected to own approximately 10.9 million Class B units, or 13.4% of the total outstanding REIT and Class B units, up from 7.3% before the Transaction. For more information on the Internalization, reference the news release issued by the REIT on July 26, 2016.
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Q2 2016, Q2 2015, YTD 2016 and YTD 2015 Financial Results Summary |
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|
(US$000s, except per unit amounts) |
Q2 2016 |
Q2 2015 |
Change |
YTD 2016 |
YTD 2015 |
Change |
|
|
Rents, Samestore |
900 |
845 |
6.5% |
900 |
845 |
6.5% |
|
|
Rents, Total |
933 |
837 |
11.5% |
933 |
837 |
11.5% |
|
|
Occupancy, Samestore |
95.2% |
95.3% |
(10 bp) |
95.2% |
95.3% |
(10 bp) |
|
|
Occupancy, Total |
95.2% |
95.2% |
Nil |
95.2% |
95.2% |
Nil |
|
|
Revenue, Samestore |
48,407 |
45,669 |
6.0% |
95,578 |
90,393 |
5.7% |
|
|
Revenue, Non-samestore |
18,530 |
7,373 |
151.3% |
34,722 |
12,610 |
175.4% |
|
|
Revenue, Management Company |
2,804 |
1,777 |
57.8% |
5,069 |
3,360 |
50.9% |
|
|
Revenue, Total |
69,741 |
54,819 |
27.2% |
135,369 |
106,363 |
27.3% |
|
|
Operating Expenses, Samestore |
14,778 |
15,153 |
(2.5%) |
51,273 |
52,178 |
(1.7%) |
|
|
Operating Expenses, Non-samestore |
5,167 |
2,794 |
84.9% |
12,159 |
5,009 |
142.7% |
|
|
Operating Expenses, Management Company |
2,468 |
1,563 |
57.9% |
4,258 |
2,957 |
44.0% |
|
|
Operating Expenses, Total(1) |
22,413 |
19,510 |
14.9% |
67,690 |
60,144 |
12.5% |
|
|
Property Revenue, Samestore |
48,407 |
45,669 |
6.0% |
95,578 |
90,393 |
5.7% |
|
|
Property Revenue, Non-samestore |
18,530 |
7,373 |
151.3% |
34,722 |
12,610 |
175.4% |
|
|
Property Revenue, Total(2) |
66,937 |
53,042 |
26.2% |
130,300 |
103,003 |
26.5% |
|
|
Property Operating Expenses, Samestore |
20,172 |
20,246 |
(0.4%) |
40,529 |
40,038 |
1.2% |
|
|
Property Operating Expenses, Non-samestore |
8,308 |
3,555 |
133.7% |
15,148 |
6,284 |
141.1% |
|
|
Property Operating Expenses, Total(2,3) |
28,480 |
23,801 |
19.7% |
55,677 |
46,322 |
20.2% |
|
|
NOI, Samestore |
28,235 |
25,423 |
11.1% |
55,049 |
50,355 |
9.3% |
|
|
NOI, Non-samestore |
10,222 |
3,818 |
167.7% |
19,574 |
6,326 |
209.4% |
|
|
NOI, Total(2,3) |
38,457 |
29,241 |
31.5% |
74,623 |
56,681 |
31.7% |
|
|
NOI Margin, Samestore |
58.3% |
55.7% |
260 bp |
57.6% |
55.7% |
190 bp |
|
|
NOI Margin, Non-samestore |
55.2% |
51.8% |
340 bp |
56.4% |
50.2% |
620 bp |
|
|
NOI Margin, Total(2,3) |
57.5% |
55.1% |
240 bp |
57.3% |
55.0% |
230 bp |
|
|
FFO |
21,271 |
17,283 |
23.1% |
40,633 |
33,671 |
20.7% |
|
|
FFO Per Unit, Basic(4) |
0.28 |
0.27 |
0.01 |
0.55 |
0.54 |
0.01 |
|
|
FFO Per Unit, Diluted(5) |
0.28 |
0.27 |
0.01 |
0.53 |
0.54 |
(0.01) |
|
|
FFO Payout Ratio(6) |
49% |
50% |
(1%) |
54% |
49% |
5% |
|
|
AFFO |
19,150 |
14,886 |
28.6% |
37,272 |
29,140 |
27.9% |
|
|
AFFO Per Unit, Basic(4) |
0.25 |
0.24 |
0.01 |
0.50 |
0.47 |
0.03 |
|
|
AFFO Per Unit, Diluted(5) |
0.25 |
0.23 |
0.02 |
0.49 |
0.46 |
0.03 |
|
|
AFFO Payout Ratio(6) |
54% |
58% |
(4%) |
59% |
57% |
2% |
|
|
Total Distributions Declared(7) |
10,428 |
8,570 |
21.7% |
21,971 |
16,657 |
31.9% |
|
|
Weighted average shares outstanding â basic |
75,818,487 |
63,324,319 |
74,477,810 |
62,453,028 |
|||
|
Weighted average shares outstanding â diluted |
76,391,077 |
63,625,865 |
76,380,443 |
62,738,159 |
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|
Debt to gross book value |
48.9% |
47.8% |
110 bp |
48.9% |
47.8% |
110 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 by the amount of the total weighted average number of outstanding REIT and Class B units for the respective periods. |
|
(5) |
Diluted FFO and AFFO per unit are calculated by dividing total FFO and AFFO by the amount of the total weighted average number of outstanding REIT units, Class B units, subscription receipts and options for the respective periods. |
|
(6) |
FFO and AFFO Payout ratios are calculated by dividing the amount of REIT unitholders and Class B unitholders distributions declared, by FFO and AFFO for the respective periods. Distributions on REIT units and Class B units are translated based on an average CAD to USD exchange rate for the respective periods, consistent with IFRS, as applicable. Note that monthly distributions starting with the January 2016 distribution were paid in USD and thus not translated from USD to CAD. |
|
(7) |
Represents total cash distributions declared to REIT unitholders and Class B unitholders for the periods. |
Q2 2016 Financial Results
Total and samestore property revenue were $66.9 million and $48.4 million, respectively, up 26.2% and 6.0% from Q2 2015. The increase in total and samestore property revenue is attributable to continued strong occupancy, organic rent growth and growth from acquisitions completed during and subsequent to Q2 2015.
Total property operating expenses were $28.5 million, up 19.7% from Q2 2015. The increase in total property operating expenses is primarily attributable to expenses related to the operations of properties acquired during and subsequent to Q2 2015 and higher real estate tax estimates. Samestore property operating expenses were $20.2 million, a decline of 0.4% from Q2 2015, primarily reflecting continued improved operating efficiencies achieved through greater economies of scale as Milestone continues to grow its portfolio.
Total and samestore NOI were $38.5 million and $28.2 million, respectively, up 31.5% and 11.1% from Q2 2015. Total and samestore NOI margins were 57.5% and 58.3%, respectively, up 240 and 260 basis points from Q2 2015. The increase in total and samestore NOI and NOI margins is primarily attributable to growth in property revenue and improved operating efficiencies, as noted above.
FFO and AFFO of $21.3 million and $19.2 million, respectively, were up 23.1% and 28.6% from Q2 2015. FFO and AFFO growth were attributable to higher property revenue and NOI during the quarter. Diluted FFO and AFFO per unit were $0.28 and $0.25, respectively, up from $0.27 and $0.23 in Q2 2015. FFO and AFFO for Q2 2016 were adversely affected by a $0.9 million increase in deferred units expense compared to Q2 2015 due to an increase in the REIT’s unit price in U.S. dollars during the period.
Update on the Advenir at Mission Ranch (“Mission Ranch”) Property Acquisition
The REIT is no longer pursuing the acquisition of Mission Ranch, a 295-unit multifamily apartment community located in East Dallas, Texas that was previously announced by the REIT on May 9, 2016. During the course of its due diligence, the REIT, together with its third party service providers, concluded that it was in the best interest of the REIT to exercise the option to terminate the Mission Ranch purchase agreement and reclaim its earnest money deposit as a result of an issue uncovered during due diligence.
Fair Value on Investment Properties
As at June 30, 2016, the REIT’s properties were valued using an overall weighted capitalization rate of 6.23% (March 31, 2016 â 6.25%; December 31, 2015 â 6.38%). There were $16.9 million of fair value gains recognized in Q2 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 and Class B unitholders of the REIT’s operating partnership were $10.4 million in Q2 2016, representing FFO and AFFO payout ratios of 49% and 54%, respectively, compared to declared distributions of $8.6 million in Q2 2015, representing FFO and AFFO payout ratios of 50% and 58%.
Liquidity and Capital Structure
As at June 30, 2016, the REIT had cash and cash equivalents of $10.6 million and a $100.0 million revolving line of credit (with an option to increase the line to $125.0 million). As at August 11, 2016, the REIT had a zero balance on its line of credit. The REIT ended the period with mortgage notes payable carrying value of $1.2 billion with 87.7% issued at fixed rates, a weighted average interest rate of 3.64% and a weighted average maturity of approximately 6.4 years. The REIT’s debt to gross book value ended Q2 2016 at 48.9%.
Units Outstanding
As at August 11, 2016, there were 70,039,063 REIT units and 5,779,424 Class B units outstanding.
Conference Call
Robert Landin, CEO, Steve Lamberti, COO, and Ryan Newberry, CFO, will host a conference call for the investment community tomorrow, Friday, August 12, 2016 at 12:00 p.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 Friday, August 19, 2016. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 585909). The webcast will be archived on Milestone’s website.
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 second quarter ended June 30, 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, completion of the Transaction, the financing of the Transaction, the effects of the Transaction on the REIT (including its impact on AFFO) and anticipated general and administrative expenses. 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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