TransGlobe Apartment REIT Reports First Quarter 2012 Results
MISSISSAUGA, ON, May 10, 2012 /CNW/ - TransGlobe Apartment Real Estate Investment Trust (TSX: TGA.UN) (the "REIT") announced today its results for the three months ended March 31, 2012.
First Quarter Highlights
- Same property NOI up 1.6% in the first quarter, as compared to the same period in 2011.
- Same property Average Monthly Rents of $904 per suite, up from $887 last year.
- Portfolio occupancy of 96.2% at March 31, 2012 driven by strong performance in Ontario which accounts for 70.3% of the portfolio.
- Weighted average interest rate of mortgages at March 31, 2012 of 3.72% lower than 3.91% at March 31, 2011 and lower than 3.73% at December 31, 2011.
Proposed Transaction
On April 26, 2012, the REIT entered into an acquisition agreement (the "Acquisition Agreement") with PD Kanco LP and Starlight Investments Ltd. (collectively with their affiliates, "Starlight"), entities controlled by Mr. Daniel Drimmer, pursuant to which holders of the REIT's trust units ("Units") will be entitled to receive $14.25 in cash for each Unit (the "Proposed Transaction") through a combination of a special cash distribution and redemption proceeds.
The REIT has adjourned its annual general meeting of unitholders to June 27, 2012 to coincide with the unitholder meeting to be held on that date to consider the Proposed Transaction.
See "Subsequent Events" below.
Operating Performance
Property revenues for the three months ended March 31, 2012 were $58.0 million, up significantly from $28.9 million for the same period last year primarily due to the contribution of acquisitions completed over the prior twelve months.
Average Monthly Rents ("AMR") per suite for properties owned prior to March 31, 2011 were $904 at March 31, 2012, up from $887 at March 31, 2011. Overall AMR per suite was $885 at March 31, 2012 compared to $888 in the prior year. The slightly lower overall AMR is a result of acquisitions completed during the year which had lower average rents than the portfolio owned at March 31, 2011.
Portfolio occupancy was 96.2% at March 31, 2012, slightly higher than the 96.1% at March 31, 2011 due to higher vacancies from certain properties acquired over the prior twelve months and lower occupancy in the Atlantic Canada region. The Ontario market which accounts for 70.3% of the suites in the REIT's portfolio, had occupancy of 98.0% at March 31, 2012, up from 96.8% at the same time last year.
Net Operating Income ("NOI") for the three months ended March 31, 2012 increased to $28.6 million from $14.6 million in the prior year due to the significant portfolio growth. The NOI margin of 49.3% in the first quarter of 2012 was slightly lower than the 50.4% in the same prior year period due to certain properties acquired over the prior twelve months with lower NOI margins.
Same property revenues and expenses in the first quarter of 2012 rose 1.6%. As a result, same property NOI rose 1.6% compared to the same period in the prior year, with NOI margins consistent at 50.4% for both periods.
Basic Funds from Operations ("FFO") for the three months ended March 31, 2012 were $15.1 million ($0.21 per Unit). Excluding the costs incurred in connection with the Proposed Transaction, FFO for the three months ended March 31, 2012 were $15.8 million ($0.22 per Unit) up from $8.3 million ($0.22 per Unit) in the first quarter of last year due primarily to the contribution from acquisitions. The REIT generated an FFO payout ratio of 89.9% in the first quarter of 2012 compared to 95.7% in the same period last year.
Basic Adjusted Funds from Operations ("AFFO") for the three months ended March 31, 2012 was $11.6 million ($0.16 per Unit). Excluding the costs incurred in connection with the Proposed Transaction, AFFO for the three months ended March 31, 2012 was $12.3 million ($0.17 per Unit) up from $6.4 million ($0.17 per Unit) in the first quarter of last year due to the contribution from acquisitions.
The REIT maintained a strong balance sheet and liquidity position as at March 31, 2012 with a debt to Gross Book Value ratio of 61.5%, consistent with the 61.4% at December 31, 2011, and a solid interest coverage ratio of 1.9 times. The weighted average interest rate on its mortgage portfolio of 3.72% was down from 3.73% at December 31, 2011, with the weighted average term to maturity of 3.59 years up from 3.44 years at the end of 2011. As at March 31, 2012, approximately 34% of the total mortgage portfolio was CMHC-insured, and management believes it will benefit from lower interest rate spreads as it continues to increase its exposure to CMHC-insured debt as mortgages mature in the future.
During the first quarter of 2012, the REIT repaid $51.9 million of mortgages with a weighted average interest rate of 3.86%. The mortgages were refinanced in the principal amount of $53.3 million with a weighted average interest rate of 3.53% and a weighted average term to maturity of 9.00 years. Repayments of mortgages payable during the three months ended March 31, 2012 were $6.1 million. As at March 31, 2012 the REIT had available liquidity under its operating credit facility of approximately $24.1 million.
Subsequent Events
On April 2, 2012, the REIT indirectly acquired one residential property, owned and operated by a third party in Waterloo, Ontario. The purchase price of approximately $16.4 million was satisfied by cash and the assumption by the REIT of approximately $7.3 million aggregate principal amount of mortgage debt secured against the acquired property bearing an interest rate of 4.35%, which matures November 1, 2013.
On April 13, 2012 the REIT obtained second mortgages on two properties for combined proceeds of $8.5 million with a weighted average interest rate of 3.14% and with an average term to maturity of 3.51 years.
On May 1, 2012, the REIT indirectly acquired one residential property containing 36 rental suites, owned and operated by a third party in Saint John, New Brunswick. The purchase price of approximately $4.3 was satisfied by cash.
On April 26, 2012, the REIT entered into the Acquisition Agreement, pursuant to which holders of Units will be entitled to receive $14.25 in cash for each Unit through a combination of a special cash distribution and redemption proceeds. As part of the Proposed Transaction, CAPREIT Limited Partnership (a subsidiary limited partnership of Canadian Apartment Properties Real Estate Investment Trust, collectively with its affiliates, "CAPREIT"), Timbercreek Asset Management Inc. (collectively with certain of its affiliates, "Timbercreek") and a wholly-owned subsidiary of the Public Sector Pension Investment Board (collectively with certain of its affiliates, "PSP Investments") have each entered into purchase or subscription arrangements with Starlight and/or the REIT pursuant to which such parties will acquire certain specified REIT properties.
Starlight and PSP Investments, collectively holders of approximately 26% of the outstanding Units (on a non-diluted basis, but including the issued and outstanding class B limited partnership units of subsidiary limited partnerships of the REIT) have entered into voting and support agreements (the "Support Agreements") with the REIT to, among other things, support the Proposed Transaction. In addition, CAPREIT, Timbercreek and PSP Investments have provided limited guarantees in favour of the REIT to support specified obligations under the Acquisition Agreement and the various agreements to which they are a party.
Pursuant to the Acquisition Agreement, the REIT has an initial 45-day go-shop period that will extend from April 26, 2012 to June 9, 2012 (the "Go-Shop Period") during which it is permitted to solicit acquisition proposals from third parties. The REIT has a single option to extend the Go-Shop Period by 15 days (to June 24, 2012), in certain circumstances. In their Support Agreements, Starlight and PSP Investments have also committed to vote their Units in favour of, or tender their Units into, any superior proposal received during the Go-Shop Period, subject to certain terms and conditions. Starlight will not have the right to match a superior proposal during the Go-Shop Period under the terms of the Acquisition Agreement. If the REIT enters into or recommends a superior proposal during the Go-Shop Period, there will be a break fee payable to Starlight of $21.1 million. If a superior proposal is entered into or recommended by the REIT's board of trustees following the expiry of the Go-Shop Period, subject to Starlight's right to match such proposal, Starlight will be entitled to a break fee of $25.0 million.
Completion of the Proposed Transaction will require the unitholders to pass a special resolution (being 66 2/3% of the votes cast) approving the Proposed Transaction and effecting certain amendments to the REIT's declaration of trust at a meeting of unitholders scheduled to be held on June 27, 2012 (the "Meeting"). The Proposed Transaction will also require approval of a simple majority of the votes cast by unitholders present in person or represented by proxy at the Meeting, other than Starlight, PSP Investments, CAPREIT, Timbercreek and their respective affiliates, under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions. In addition to the requisite unitholder approvals, the Proposed Transaction is subject to certain closing conditions, including (i) notification under the Competition Act (Canada) and the approval of the Toronto Stock Exchange, (ii) receipt of certain required lenders' consents and (iii) other customary closing conditions (including the absence of any material adverse effect with respect to the REIT). In the event that the Proposed Transaction is not completed in certain circumstances, Starlight will pay the REIT a termination fee in the amount of $25.0 million, and will support any superior proposal received by the REIT for 6 months thereafter.
Completion of the Proposed Transaction is expected to constitute a change of control under the trust indenture governing the REIT's outstanding 5.40% convertible unsecured subordinated debentures (the "Convertible Debentures"). Pursuant to the Acquisition Agreement, the REIT has agreed to effect a consent solicitation and/or hold a meeting of holders of Convertible Debentures to permit the early redemption of the such debentures, and (if necessary) to exercise its defeasance right therefore.
The Proposed Transaction is subject to closing conditions, including those noted above, which may not be fulfilled. In addition, Starlight may terminate the Acquisition Agreement in certain circumstances. Accordingly, the Proposed Transaction may not be completed. Pursuant to the terms of the Acquisition Agreement, the REIT has agreed to certain covenants regarding the conduct of its business during the term of the Acquisition Agreement, which covenants may require the REIT to run its business differently than it would otherwise be run. The Proposed Transaction and go-shop process may also divert significant management attention and focus away from the business of the REIT during such interim period. Negotiation of the Proposed Transaction and undertaking of the go-shop process has and will subject the REIT to expenses that may not be reimbursed to the REIT if the Proposed Transaction fails to be completed and, in some situations, the REIT may be required to pay a break fee to Starlight or reimburse Starlight for expenses if the Proposed Transaction fails to be completed. Further, if the Proposed Transaction fails to be completed and no superior proposals are received and implemented by the REIT, the REIT's business, prospects, financial condition, financial performance and cash flows, as well as the trading price of the REIT's securities, could be materially adversely impacted.
The Proposed Transaction is expected to be completed on or about June 29, 2012 and it is expected that the REIT will cease to be a reporting issuer. Further information regarding the risk associated with the Proposed Transaction will be available in the REIT's proxy circular related to the Meeting, to be filed and available under the REIT's profile at www.sedar.com.
Conference Call
Due to the above-mentioned Proposed Transaction to privatize the REIT, management will not be holding an investor conference call this quarter.
About TransGlobe Apartment Real Estate Investment Trust
TransGlobe Apartment Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust owning a portfolio of approximately 21,771 high quality apartment and town- house suites that are well-located in urban centres in Alberta, Ontario, Québec, New Brunswick and Nova Scotia.
FINANCIAL HIGHLIGHTS
| As at March 31, 2012 |
As at December 31, 2011 |
As at March 31, 2011 |
||||||
| Operational Information | ||||||||
| Number of properties | 174 | 174 | 92 | |||||
| Total suites | 21,516 | 21,523 | 11,948 | |||||
| Occupancy % | 96.2% | 96.7% | 96.1% | |||||
| Weighted average in-place rent | $885 | $880 | $888 | |||||
| Summary of Financial Information | ||||||||
| Gross Book Value (1) | $2,048,965 | $2,042,382 | $1,101,056 | |||||
| Indebtedness (2) | $1,261,033 | $1,254,146 | $652,440 | |||||
| Indebtedness to Gross Book Value (3) | 61.54% | 61.41% | 59.26% | |||||
| Weighted average mortgage interest rate (4) | 3.72% | 3.73% | 3.91% | |||||
| Weighted average mortgage term to maturity | 3.59 years | 3.44 years | 2.86 years | |||||
| Three months ended | ||||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Summary of Financial Information | ||||||||
| Interest coverage (5) | 1.87 x | 2.17 x | ||||||
| Indebtedness coverage ratio (6) | 1.46 x | 1.47 x | ||||||
| Revenue from property operations | $58,030 | $28,887 | ||||||
| NOI | $28,597 | $14,569 | ||||||
| Net income (loss) and comprehensive income (loss) | $8,800 | ($786) | ||||||
| FFO - basic | $15,079 | $8,325 | ||||||
| FFO - diluted | $15,754 | $8,325 | ||||||
| FFO per unit - basic and diluted | $0.21 | $0.22 | ||||||
| FFO per unit - basic and diluted (excluding impact of the Proposed Transaction) (7) | $0.22 | $0.22 | ||||||
| AFFO - basic | $11,577 | $6,449 | ||||||
| AFFO - diluted | $12,252 | $6,449 | ||||||
| AFFO per unit - basic and diluted | $0.16 | $0.17 | ||||||
| AFFO per unit - basic and diluted (excluding impact of the Proposed Transaction) (7) | $0.17 | $0.17 | ||||||
| Distributions per unit (annualized) - basic | $0.75 | $0.75 | ||||||
| FFO payout ratio | 89.93% | 95.71% | ||||||
| AFFO payout ratio | 117.14% | 123.55% | ||||||
| Units outstanding at period-end for FFO and AFFO per unit: | ||||||||
| Weighted average (000s) - basic (8) | 72,284 | 38,628 | ||||||
| Add: | Unexercised Unit Options | 73 | 27 | |||||
| Convertible Debentures | 3,166 | - | ||||||
| Weighted average (000s) - diluted (8) | 75,523 | 38,655 | ||||||
| Notes: | |||||||||
| (1) | "Gross Book Value" is defined in the DOT and excludes impact of any fair value adjustment of investment properties. | ||||||||
| (2) | "Indebtedness" is defined in the DOT and excludes mark-to-market premium of $21,033, $24,102 and $13,954 and unamortized financing costs and Canada Mortgage and Housing Corporation ("CMHC") premium of $7,540, $6,359 and $816 at March 31, 2012, December 31, 2011 and March 31, 2011, respectively, and contingent liabilities. "Indebtedness" also includes face value of the REIT's outstanding 5.40% convertible unsecured subordinated debentures due September 30, 2018 (the "Convertible Debentures") of $48,750, $50,000 and $nil and letters of credit amounting to $6,359, $4,548 and $nil at March 31, 2012, December 31, 2011 and March 31, 2011, respectively. | ||||||||
| (3) | Defined as Indebtedness divided by Gross Book Value. | ||||||||
| (4) | Market weighted average mortgage interest rates at March 31, 2012, December 31, 2011 and March 31, 2011 were 4.49%, 4.51% and 2.92%, respectively and excludes the Convertible Debentures. | ||||||||
| (5) | Defined as net income plus finance costs, less finance income and adjusted for non-cash items divided by interest expense, net of amortization of mortgage premium, distributions on Class B LP Units and receivables from promissory notes and agreements pursuant to which DrimmerCo provides monthly payments to the REIT in consideration for the REIT having assumed certain mortgages and mortgage pools in connection with the acquisition of properties from DrimmerCo (the "Instalment Notes"). | ||||||||
| (6) | Contractual payments on mortgages and Convertible Debentures, and gives effect to the payments provided by DrimmerCo under the Instalment Notes. | ||||||||
| (7) | Costs incurred in connection with the Proposed Transaction during the three months ended March 31, 2012 and 2011 were $718 and $nil, respectively. | ||||||||
| (8) | For purposes of calculating FFO and AFFO per unit, Class B LP Units are included as Units outstanding on both a basic and diluted basis. | ||||||||
For the complete financial statements and Management's Discussion and Analysis for the period, please visit www.sedar.com or the REIT's web site at www.tgareit.com.
Non-IFRS Financial Measures
NOI, FFO and AFFO do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Such measures as computed by the REIT may differ from similar measures as reported by other trusts or companies in similar or different industries.
Management considers NOI to be an important measure of the REIT's operating performance and uses this measure to assess the REIT's property operating performance on an unlevered basis. FFO is a measure of operating performance based on the funds generated from the business of the REIT before reinvestment or provision for other capital needs. Management considers NOI and FFO to be important measures of the REIT's operating performance and AFFO to be an important performance measure to determine the sustainability of future distributions paid to holders of trust REIT units after provision for maintenance capital expenditures. AFFO should not be interpreted as an indicator of cash generated from operating activities as it does not consider changes in working capital.
Reconciliation of AFFO to FFO and FFO to net income (loss) and comprehensive income (loss) is provided in the "Non-IFRS Financial Measures" section of the MD&A. A reconciliation of NOI to revenue from property operations is provided in the "Financial Performance" section of the MD&A.
Forward-looking Statements
Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking statements are provided for the purposes of assisting the reader in understanding the REIT's financial performance, financial position and cash flows as at and for the periods ended on certain dates and to present information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information may relate to future results, performance, achievements, events, prospects or opportunities for the REIT or the real estate industry and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements included at "Subsequent Events" and those regarding the REIT's use of CMHC-insured debt are forward-looking statements. In some cases, forward-looking information can be identified by such terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "seek", "aim", "estimate", "target", "goal", "project", "predict", "forecast", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts.
Forward-looking statements necessarily involve known and unknown risks and uncertainties, that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, many of which are beyond the REIT's control, affect the operations, performance and results of the REIT and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to, the risks discussed in the REIT's materials filed with Canadian securities regulatory authorities from time to time. The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements as there can be no assurance that actual results will be consistent with such forward-looking statements.
Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the Canadian economy will remain stable over the next 12 months; inflation will remain relatively low; interest rates will remain stable; conditions within the real estate market, including competition for acquisitions, will be consistent with the current climate; the Canadian capital markets will provide the REIT with access to equity and/or debt at reasonable rates when required; and that the risks referenced above, collectively, will not have a material impact on the REIT. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect.
The forward-looking statements made in this press release relate only to events or information as of the date on which the statements are made in this press release. Except as specifically required by applicable Canadian law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Kelly Hanczyk
Chief Executive Officer
905-293-9400 ext. 1970
Leslie Veiner
Chief Financial Officer
(905) 293-9400 ext. 1985
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