TORONTO, ON and DALLAS, TX–(Marketwired – October 19, 2016) –
NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR DISSEMINATION IN THE UNITED STATES
Milestone Apartments Real Estate Investment Trust (TSX: MST.UN) (“Milestone” or the “REIT”) today announced that it has entered into a definitive agreement to acquire a six high quality garden-style multifamily property portfolio comprising 1,460 units in attractive U.S. Sunbelt markets (the “Acquisition”) for approximately US$242.2 million. The Acquisition, which is subject to customary closing conditions, is expected to close no later than December 1, 2016.
To partially fund the Acquisition, the REIT also announced that it has reached an agreement with a syndicate of underwriters co-led by BMO Capital Markets and CIBC Capital Markets to issue 9,490,000 trust units of the REIT (“Units”) at a price of C$18.45 per Unit, on a bought deal basis, for gross proceeds of approximately C$175 million (the “Offering”).
The REIT also announced today that its Board of Trustees has approved a 10.0% increase to its Unitholder monthly cash distributions. The increase to cash distributions is expected to be effective for the January 2017 distribution, payable on February 15, 2017, to Unitholders of record on January 31, 2017.
Acquisition Highlights
- Milestone will acquire a portfolio of six high quality garden-style multifamily properties comprising 1,460 units (the “Properties”) for a gross purchase price of approximately US$242.2 million;
- The Properties have a weighted average year built of 2005 and upon acquisition will further decrease the average age of the REIT’s portfolio;
- The Acquisition is in line with the REIT’s growth strategy to continue to high-grade its portfolio and improve its operating margins and cash flow position;
- As part of the Acquisition, the REIT will further geographically diversify its U.S. Sunbelt property portfolio, which benefits from strong underlying demographic trends and higher than national average employment and population growth, by increasing scale in four existing markets and entering two new markets, establishing greater critical mass to drive operating efficiencies and growth;
- Following completion of the Acquisition and the REIT’s proposed property disposition described below (the “Proposed Disposition”), the REIT is expected to have eight unencumbered assets, further enhancing the REIT’s liquidity and balance sheet flexibility;
- Following the completion of the Acquisition, the REIT’s investment properties’ value is expected to increase by more than 10% to approximately US$2.72 billion, from US$2.42 billion at the end of the second quarter of 2016; and
- As of September 30, 2016, the Properties had average monthly rents of approximately US$1,175 and average occupancy of 95.5%.
“The portfolio acquisition reflects our ongoing strategic acquisition approach to growing the REIT’s portfolio and improving its operating margins and cash flow. This acquisition will also increase our scale as we continue to diversify our portfolio in high growth U.S. Sunbelt markets, which benefit from strong underlying demographic trends and higher than national average employment and population growth,” said Robert Landin, CEO of Milestone.
Commenting on the distribution increase, Mr. Landin said, “The decision to increase Unitholder distributions again this year reflects Milestone’s continued strong operating performance and our Trustees’ confidence in the REIT’s business and future cash flows.”
Bought Deal Equity Offering
To finance a portion of the purchase price for the Acquisition, the REIT has reached an agreement with a syndicate of underwriters co-led by BMO Capital Markets and CIBC Capital Markets to issue 9,490,000 Units at a price of C$18.45 per Unit, on a bought deal basis, for gross proceeds of approximately C$175 million. The REIT has also granted the Underwriters an option to purchase up to an additional 949,000 Units on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering. BMO Capital Markets is the sole bookrunner on the Offering.
The Units will be offered in each of the provinces and territories of Canada pursuant to the REIT’s base shelf prospectus dated September 30, 2016. The terms of the Offering will be described in a prospectus supplement to be filed with Canadian securities regulators. The Offering is expected to close on or about October 28, 2016 and is subject to certain conditions including, but not limited to, the receipt of all regulatory approvals including the approval of the Toronto Stock Exchange (the “TSX”).
The Units have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, (the “1933 Act”) and may not be offered, sold or delivered, directly or indirectly, in the United States, or to, or for the account or benefit of, “U.S. persons” (as defined in Regulation S under the 1933 Act), except pursuant to an exemption from the registration requirements of the 1933 Act. This press release does not constitute an offer to sell or a solicitation of an offer to buy any Units in the United States or to, or for the account or benefit of, U.S. persons.
Acquisition Key Facts
As part of the Acquisition, the REIT will further geographically diversify its U.S. Sunbelt property portfolio, which benefits from strong economic fundamentals, favorable underlying demographic trends and higher than national average employment and population growth, by increasing scale in Charlotte, NC, Denver, CO, Orlando, FL and San Antonio, TX, while entering two new markets, Colorado Springs, CO and Oklahoma City, OK, establishing greater critical mass to drive operating efficiencies and growth. The properties located in Colorado Springs and Oklahoma City will be managed from the REIT’s closest regional offices, allowing Milestone to efficiently manage the properties while providing a foothold to drive potential growth opportunities in these desirable new markets.
The Properties are located in major metropolitan markets in the U.S. Sunbelt and represent a good fit within Milestone’s existing geographical footprint. The Properties are similar to the REIT’s established portfolio, featuring extensive amenities and located in close proximity to shopping, dining, and entertainment options, as well as major transportation corridors and employment centers. The Properties are being acquired at an average year one capitalization rate of approximately 5.8%. As of September 30, 2016, the Properties had average monthly rents of approximately US$1,175 and average occupancy of 95.5%.
| Property | State | Market | Submarket | Units | # of 1 BR’s | # of 2 BR’s | # of 3 BR’s | Year Built | OCC(1) | Rents(2) ($) | ||||||||||||
| Fairways at Birkdale | North Carolina | Charlotte | Huntersville | 180 | 80 | 84 | 16 | 1997 | 93.8% | 1,042 | ||||||||||||
| Talon Hill | Colorado | Colorado Springs | North Colorado Springs | 276 | 144 | 108 | 24 | 2006 | 97.7% | 1,274 | ||||||||||||
| Eagle Ridge | Colorado | Denver | Loveland | 168 | 84 | 84 | 0 | 1999 | 97.1% | 1,293 | ||||||||||||
| Quail Landing | Oklahoma | Oklahoma City | North Central | 216 | 81 | 125 | 10 | 2000 | 91.6% | 845 | ||||||||||||
| Casa Mirella | Florida | Orlando | Windermere | 276 | 60 | 156 | 60 | 2013 /2015(3) | 96.7% | 1,474 | ||||||||||||
| Costa Bella | Texas | San Antonio | Stone Oak | 344 | 216 | 104 | 24 | 2007 | 95.4% | 1,073 | ||||||||||||
| Total/Weighted Average | 1,460 | 665 | 661 | 134 | 2005(4) | 95.5(4) | 1,175(4) | |||||||||||||||
- Occupancy as at September 30, 2016.
- Average in-place rents as at September 30, 2016.
- Built in two phases.
- Represents a weighted average.
Park 9 Apartments Acquisition
On October 12, 2016, the REIT completed the previously announced acquisition of Park 9 Apartments (“Park 9”), a 275-unit multifamily apartment community located in Woodstock, a suburb northwest of Atlanta, Georgia, for a purchase price of US$47.0 million, representing an estimated year one capitalization rate of 5.7%. See the “Total Transaction Funding” section below for more detail on the funding of Park 9.
Proposed Disposition
As part of Milestone’s overall business strategy to build long term Unitholder value through strategic acquisitions and dispositions, the REIT has agreed to sell one of its IPO properties located in Dallas-Fort Worth, TX, for net sales proceeds of approximately US$24.9 million at an expected average in-place capitalization rate of 6.5%. This property is currently unencumbered. The buyer has made a $0.5 million deposit to secure its performance under the purchase contract. The REIT will disclose the final details of the Proposed Disposition following closing of the sale, which is expected by no later than December 31, 2016.
Total Transaction Funding
The Acquisition of the six property portfolio and the acquisition of Park 9 (together, the “Transaction”), including financing and transaction costs, are expected to be funded as follows (in US$ millions):
| (i) Mortgage assumptions on the Properties | US$103.7 |
| (ii) Gross proceeds from the bought deal equity Offering(1) | US$133.5 |
| (iii) Net proceeds from the refinancing of the existing REIT mortgage debt facility | US$30.3 |
| (iv) The Proposed Disposition, working capital and the REIT’s revolving line of credit | US$29.4 |
| Total | US$296.9 |
- Based on a US$ to C$ exchange rate of 1 to 1.3107, based on the Bank of Canada’s noon U.S. dollar exchange rate as at October 22, 2016.
- approximately US$103.7 million of mortgage assumptions on four properties being acquired as part of the Acquisition with a weighted average interest rate of 3.77% and a weighted average maturity of August 2022; the remaining two properties to be acquired as part of the Acquisition are being acquired unencumbered;
- gross proceeds of approximately US$133.5 million from the bought deal equity Offering;
- net proceeds of approximately US$30.3 million from the refinancing of the REIT’s mortgage debt facility (the “Facility”) completed on October 12, 2016, which as at June 30, 2016 had a balance of US$291.4 million. The additional funds received from the refinancing of the Facility are interest-only with a fixed interest rate of 3.34% and a debt maturity of approximately 7.0 years. As a part of the refinancing of the Facility the REIT substituted Park 9 into the Facility while simultaneously paying off the debt on two other REIT properties, resulting in additional unencumbered assets for the REIT; and
- approximately US$29.4 from the Proposed Disposition, working capital and the REIT’s revolving line of credit.
The REIT will disclose the final details of the Transaction, including all final funding terms, following closing of the Transaction.
Milestone Pro-forma Portfolio
The table below presents the REIT’s pro-forma portfolio following the Transaction:
| As at Q2 2016 (June 30, 2016) | Pro-Forma | |||||||||||||
| State | Market | Asset Count | Unit Count | Net Acquisitions in Units | Asset Count | Unit Count | Units % of Total | |||||||
| Arizona | Phoenix | 2 | 674 | — | 2 | 674 | 2.8% | |||||||
| Colorado | Colorado Springs | — | — | 276 | 1 | 276 | 1.1% | |||||||
| Colorado | Denver | 3 | 963 | 168 | 4 | 1,131 | 4.7% | |||||||
| Florida | Jacksonville | 3 | 1,390 | — | 3 | 1,390 | 5.8% | |||||||
| Florida | Orlando | 3 | 1,087 | 276 | 4 | 1,363 | 5.7% | |||||||
| Florida | Tampa | 3 | 632 | — | 3 | 632 | 2.6% | |||||||
| Georgia | Atlanta | 5 | 1,394 | 275 | 6 | 1,669 | 7.0% | |||||||
| Missouri | Kansas City | 1 | 280 | — | 1 | 280 | 1.2% | |||||||
| North Carolina | Charlotte | 5 | 1,207 | 180 | 6 | 1,387 | 5.8% | |||||||
| Oklahoma | Oklahoma City | — | — | 216 | 1 | 216 | 0.9% | |||||||
| Tennessee | Nashville | 4 | 1,858 | — | 4 | 1,858 | 7.7% | |||||||
| Texas | Austin | 3 | 832 | — | 3 | 832 | 3.5% | |||||||
| Texas | Dallas/Fort Worth | 20 | 5,968 | (280) | 19 | 5,688 | 23.7% | |||||||
| Texas | Houston | 14 | 4,272 | — | 14 | 4,272 | 17.8% | |||||||
| Texas | San Antonio | 4 | 1,221 | 344 | 5 | 1,565 | 6.5% | |||||||
| Utah | Salt Lake City | 2 | 768 | — | 2 | 768 | 3.2% | |||||||
| Total | Total | 72 | 22,546 | 1,455 | 78 | 24,001 | 100% | |||||||
Pro-forma Debt Profile
Following the Transaction, including all related financing, the REIT’s pro-forma mortgage notes obligations are projected to be approximately US$1.34 billion, with a weighted average interest rate of approximately 3.65% and a weighted average maturity of approximately 6.1 years. Approximately 88.9% of the REIT’s mortgage notes payable will be issued at fixed rates and the REIT’s pro-forma debt to gross book value ratio will be approximately 50.8%. Milestone has a US$100.0 million revolving line of credit, which has a US$25.0 million accordion option bringing the total borrowing capacity on the line up to US$125.0 million. Management believes that this liquidity position and amount of debt are at levels that allow the REIT to continue to meet current obligations and pursue future growth opportunities as they become available.
Distribution Increase
The REIT also announced today that its Board of Trustees has approved a 10% increase to its monthly cash distributions to US$0.05041 per Unit, representing US$0.60492 per Unit on an annualized basis, up from a current monthly distribution of US$0.04583 per Unit, representing US$0.55000 per Unit on annualized basis. Subsequent to this increase and the completion of the Transaction, the REIT’s adjusted funds from operations (“AFFO”) payout ratio is expected to remain below 60.0%.
The proposed increase (which is not conditional upon completion of the Acquisition) is expected to be effective for the January 2017 distribution, payable on February 15, 2017, to Unitholders of record on January 31, 2017.
About Milestone
The REIT is an unincorporated, open-ended real estate investment trust that is governed by the laws of Ontario. The REIT’s portfolio consists of 73 multifamily garden-style residential properties, comprising 22,821 apartment units that are located in 14 major metropolitan markets throughout the Southeast and Southwest United States. The REIT is the largest real estate investment trust listed on the TSX focused solely on the United States multifamily sector. Milestone’s vertically integrated platform employs more than 1,200 employees and manages more than 50,000 apartment units across the United States. For more information, please visit www.milestonereit.com.
Non-IFRS Financial measures
This press release contains certain non-IFRS financial measures including AFFO, 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 AFFO to a standardized IFRS measure.
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. These statements are based on the REIT’s expectations, estimates, forecasts and projections and include, without limitation, statements regarding the completion of the Acquisition, the Offering and the Proposed Disposition, including the anticipated closings thereof and the financing of the Acquisition, the US$ proceeds from the Offering, the benefits of the Acquisition, year one cap rates, improved diversification, operating margins and cash flow position, anticipated investment properties’ value, pro-forma debt profile, pro-forma property portfolio, proposed changes to the REIT’s distribution policy and anticipated payout ratio. The forward-looking statements in this news release are based on certain assumptions, including that all conditions to completion of the Acquisition, the Offering and the Proposed will be satisfied or waived, the Acquisition, the Offering and the Proposed Disposition will be completed on the terms described, revenue associated with the properties to be acquired and managed by the REIT will remain consistent, significant additional costs will not have to be incurred by the REIT to manage the new properties, the REIT’s assets will generate sufficient cash to allow the REIT to pay the increased distribution and exchange rates don’t change. 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. 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, a forward-looking statement speaks only as of the date on which such statement is made. The REIT undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances
For further information:
Robert Debs
Investor Relations
Milestone Apartments REIT
Tel: 214.561.1215
Bruce Wigle
Investor Relations
Bay Street Communications
647.496.7856