Milestone Apartments REIT Reports 2014 Third Quarter Results

- Consistent rent growth, strong occupancy and continued portfolio expansion through accretive acquisitions drive FFO and AFFO growth of 15.1% and 23.8% year-over-year, respectively -   

TORONTO and DALLAS, Nov. 6, 2014 /CNW/ - Milestone Apartments Real Estate Investment Trust (TSX: MST.UN) ("Milestone" or the "REIT") today announced its financial results for the third quarter­­ ("Q3 2014") and nine month period ("YTD 2014") ended September 30, 2014. All comparisons in the following summary are to the corresponding periods in the prior fiscal year. The year-to-date period ended September 30, 2013 ("YTD 2013") represents the 26-day period ended March 31, 2013 combined with the six months ended September 30, 2013, and as such, comparisons between the YTD 2014 and YTD 2013 periods should be considered in the appropriate context. The REIT completed its initial public offering ("IPO") on March 6, 2013 and had no operations prior to that date. All dollar amounts are in U.S. currency unless otherwise noted. References to "samestore" results do not take into account acquisitions completed subsequent to the IPO.

A more detailed analysis is included in the REIT's Management's Discussion and Analysis and Consolidated Financial Statements, which have been filed on SEDAR and can be viewed at www.sedar.com or on the REIT's website at www.milestonereit.com.

Q3 2014 Financial Highlights

• Total and samestore average monthly in-place rents were $776 and $752, respectively, up 6.9% and 4.9% from $726 and $717 in the third quarter ended September 30, 2013 ("Q3 2013");
• Total and samestore occupancy remained strong ending the quarter at 95.5% and 95.3%, respectively, up from total and samestore occupancy of 95.2% in Q3 2013;
• Total and samestore revenue were $47.9 million and $40.5 million, respectively, up 13.9% and 5.2% from $42.1 million and $38.5 million in Q3 2013;
• Total and samestore net operating income ("NOI") were $24.3 million and $20.7 million, respectively, up 20.3% and 8.6% from $20.2 million and $19.1 million in Q3 2013. Total and samestore NOI margin were 52.8% and 51.2%, respectively, an increase from 50.1% and 49.5% in Q3 2013;
• FFO was $13.7 million, or $0.24 per unit, up from $11.9 million, or $0.24 per unit in Q3 2013. AFFO was $11.8 million, or $0.21 per unit, up from $9.5 million, or $0.19 per unit in Q3 2013. The REIT's FFO and AFFO per unit results for Q3 2014 do not reflect the full impact of the Legacy Heights acquisition that closed on July, 24, 2014; and
• FFO and AFFO payout ratios were 61% and 71%, respectively, compared to 66% and 82% in Q3 2013.

Q3 2014 Business Highlights

• Completed the acquisition of Legacy Heights, a 384-unit multifamily apartment community located in the Westminster submarket of Denver, Colorado, for a purchase price of $50.3 million;
• Filed and obtained receipt for a C$650 million base shelf prospectus, enabling the REIT to more efficiently access capital in support of its growth by acquisition strategy;
• Renegotiated the REIT's unsecured revolving line of credit, extending the term to three years and increasing the base principal amount from $50.0 million to $85.0 million (with the opportunity to increase the line to $125.0 million), while lowering the interest rate spread from 525 basis points to 285 basis points over the 30 day LIBOR, based on the REIT's current financial leverage; and
• Declared monthly distributions of C$0.05417 per unit resulting in total distributions declared for the quarter of $8.4 million.

Subsequent Events

• Issued 10,005,000 units (including the exercise in full of the over-allotment option) at a price of C$11.50 per unit for gross proceeds of C$115.1 million, increasing the REIT's public float to 64.1% from 52.3% and reducing MileSouth Apartment Portfolio LP's ownership Interest in the REIT to 26.9% from 37.9%. Following the offering there were 61,578,656 total units outstanding (including Class B units);
• Completed the acquisition of The Village at Legacy Ridge, a 221-unit multifamily apartment community located in the Westminster submarket of Denver, Colorado, for a purchase price of $40.5 million; and
• Completed the acquisition of Villas at Shadow Creek, a 560-unit multifamily apartment community located in the Pearland submarket of Houston, Texas, for a purchase price of $74.0 million.

"We continue to achieve steady increases of in-place rents while maintaining strong occupancy levels, demonstrating Milestone's sophisticated platform, the success of our value-add initiatives and the sustained demand for high quality garden-style apartments in our U.S. Sunbelt markets," said Robert Landin, CEO of Milestone Apartments REIT. "Milestone's organic growth has been complemented by our continued success in growing the REIT through accretive acquisitions. During Q3 2014 and subsequent to quarter-end the REIT completed three acquisitions totaling 1,165 units for an aggregate purchase price of $164.8 million, further diversifying our presence within our target markets." 

"The fundamentals in our U.S. Sunbelt markets remain attractive with population and employment trends outperforming U.S. national averages. Further, Milestone's asset class continues to exhibit the strongest demand and rent growth trends among all multifamily residential asset classes in the U.S.," continued Mr. Landin.

Q3 and YTD 2014 Financial Summary
(US$000s, except per unit amounts)			Q3 2014		Q3 2013		% Change		YTD 2014		YTD 2013^(1)
Revenue, Total			47,907		42,078		13.9%		135,595		93,058
Revenue, Samestore			40,475		38,470		5.2%		119,692		87,122
Revenue, Management Company			1,855		1,831		1.3%		5,355		4,046
Operating Expenses, Total^(2)			19,017		17,338		9.7%		70,221		37,854
Operating Expenses, Samestore^(2)			15,828		15,194		4.2%		61,331		33,757
Operating Expenses, Management Company^(2)			1,633		1,611		1.4%		4,712		3,560
Property Revenue, Total^(3)			46,052		40,361		14.1%		130,240		89,243
Property Operating Expenses^(3,4)			21,717		20,127		7.9%		61,018		43,316
NOI, Total ^(3,4)			24,335		20,234		20.3%		69,222		45,927
NOI Margin, Total ^(3,4)			52.8%		50.1%		−		53.1%		51.5%
Property Revenue, Samestore^(3)			40,475		38,584		4.9%		119,692		87,353
Property Operating Expenses, Samestore^(3,4)			19,733		19,481		1.3%		57,283		42,666
NOI, Samestore ^(3,4)			20,742		19,103		8.6%		62,409		44,687
NOI Margin, Samestore ^(3,4)			51.2%		49.5%		−		52.1%		51.2%
FFO			13,668		11,873		15.1%		40,392		27,654
FFO Per Unit			0.24		0.24		−		0.76		0.56
FFO Payout Ratio^(5)			61%		66%		−		60%		65%
AFFO			11,816		9,544		23.8%		33,854		22,573
AFFO Per Unit			0.21		0.19		−		0.63		0.45
AFFO Payout Ratio^(5)			71%		82%		−		71%		79%
Total Distributions Declared^(6)			8,397		7,801		7.6%		24,136		17,935
Debt to Gross Book Value			52.6%		57.1%		−		52.6%		57.1%

(1)	The YTD period ended Sept. 30, 2013 represents the 26-day period ended March 31, 2013 combined with the six month period ended Sept. 30, 2013. The REIT completed its IPO on March 6, 2013 and had no operations prior to that date. The YTD period ended Sept. 30, 2014 represents a full nine-month period.
(2)	Includes real estate tax adjustments related to IFRIC 21.
(3)	Excludes third party property management revenue and related expenses.
(4)	Excludes real estate tax adjustments related to IFRIC 21.
(5)	Payout ratios are calculated by dividing the amount of REIT and Class B unitholder distributions declared by actual FFO and AFFO for the respective period. Distributions on REIT and Class B units are translated based on an average CAD to USD exchange rate for the respective period, consistent with IFRS guidance.
(6)	Represents total cash distributions declared to REIT and Class B unitholders for the period.

Q3 2014 Financial Results

Total and samestore property revenue were $46.1 million and $40.5 million, respectively, up 14.1% and 4.9% from $40.4 million and $38.6 million in Q3 2013. The increase in total and samestore property revenue reflects higher occupancy, continued organic rent growth and growth from acquisitions completed subsequent to Q3 2013.

Total and samestore property operating expenses were $21.7 million and $19.7 million, respectively, up 7.9% and 1.3% from $20.1 million and $19.5 million in Q3 2013. The increase in total property operating expenses is primarily attributable to higher real estate tax estimates and expenses related to the operations of the acquisitions completed subsequent to Q3 2013. The REIT's property operating expenses are generally higher for the third quarter of any year due to higher unit turnover and utility expenses during summer months.

Total and samestore NOI were $24.3 million and $20.7 million, respectively, up 20.3% and 8.6% from $20.2 million and $19.1 million in Q3 2013. Total and samestore NOI margin were 52.8% and 51.2%, respectively, an increase from 50.1% and 49.5% in Q3 2013. The increase in NOI and samestore NOI is attributable to higher property revenue, partially offset by higher operating expenses, as noted above. The REIT's NOI margin is generally lower for the third quarter of any year due to higher unit turnover and utility expenses during summer months.

FFO was $13.7 million, or $0.24 per unit, up from $11.9 million, or $0.24 per unit in Q3 2013. AFFO was $11.8 million, or $0.21 per unit, up from $9.5 million, or $0.19 per unit in Q3 2013. Increased FFO and AFFO reflect higher revenue and NOI for the quarter, as noted above. The REIT's FFO and AFFO per unit results for Q3 2014 do not reflect the full impact of the Legacy Heights acquisition that closed on July, 24, 2014.

Fair Value on Investment Properties

As at September 30, 2014 the properties were valued using an overall weighted capitalization rate of 6.4%. There were $43.1 million of fair value gains recognized in Q3 2014 primarily resulting from higher than previously forecasted NOI. Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates.

Distributions

Distributions declared to REIT and Class B unitholders of the REIT's operating partnership were $8.4 million in Q3 2014, representing an AFFO payout ratio of 71%, compared to declared distributions of $7.8 million in Q3 2013, representing an AFFO payout ratio of 82%. Distributions declared to REIT and Class B unitholders of the REIT's operating partnership were $24.1 million in the YTD 2014 period, representing an AFFO payout ratio of 71%, compared to declared distributions of $17.9 million in the YTD 2013 period, representing an AFFO payout ratio of 79%. Management expects that 100% of the REIT's distributions for the first nine months of 2014 will be return of capital. The REIT's Q3 and YTD 2014 payout ratios partially benefited from a rising U.S. dollar against the Canadian dollar during the periods.

Liquidity and Capital Structure

As at September 30, 2014, the REIT had cash and cash equivalents of $12.1 million and an $85.0 million revolving credit facility. As at November 6, 2014, the line of credit was undrawn. The REIT ended the period with mortgage notes obligations of $804.0 million with a weighted average interest rate of 3.77% and a weighted average maturity of approximately seven years. Debt to gross book value was 52.6%.

Units Outstanding

As at September 30, 2014, there were 43,497,000 REIT units and 12,864,265 Class B units outstanding. Following completion of the REIT's C$115.1 million bought deal equity offering on October 16, 2014, there were 53,502,000 REIT units and 8,076,656 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 on Friday, November 7, 2014 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 accessible via Milestone's website at: www.milestonereit.com/investor-relations/events-presentations.

A replay of the call will be available until Friday, November 14, 2014. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 052165). The webcast will be archived on Milestone's website.

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 59 multifamily garden-style residential properties, comprising 19,553 units that are located in 12 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 more than 900 employees 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 more than US$4.5 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, NOI, average in-place rents, average occupancy, samestore measures, acquisitions, FFO payout ratio, AFFO payout ratio and any related per unit amount 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 third quarter ended September 30, 2014 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, access to capital, financial flexibility, the ability to pursue value creation opportunities, and the ability to create long-term unitholder value. 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

Robert Debs, Investor Relations, Milestone Apartments REIT, Tel: [phone]; Bruce Wigle, Investor Relations, Bay Street Communications, Tel: [phone]