Transglobe Apartment REIT Announces Third Quarter 2011 Results

MISSISSAUGA, ON, Nov. 10, 2011 /CNW/ - TransGlobe Apartment Real Estate Investment Trust (TSX: TGA.UN) (the "REIT") announced today results for the three and nine months ended September 30, 2011.

THIRD QUARTER HIGHLIGHTS:

  • Occupancies increased to 96.7% at September 30, 2011 from 96.0% at June 30, 2011
  • Same property Average Monthly Rents of $909 per suite, up from $898 per suite at September 30, 2010
  • Completed acquisition of 57 properties, comprising approximately 7,500 suites, for approximately $740 million, strengthening portfolio and enhancing geographic diversification
  • Completed internalization of property and asset management functions to enhance growth prospects
  • Significant growth in Adjusted Funds from Operations ("AFFO") due to portfolio expansion
  • Subsequent to quarter-end, completed acquisition of 23 properties, comprising approximately 1,261 suites, in Eastern Canada for approximately $65 million
  • REIT to take over the property management of Eastern Canada portfolio effective January 1, 2012

"Transactions completed over the last few months have transformed the REIT into one of Canada's largest apartment REITs with the assets, the people and the strategies to continue to build value for our Unitholders," commented Kelly Hanczyk, Chief Executive Officer. "With the significant property acquisitions and the full internalization of our property and asset management functions, we expect to generate further strong growth in our financial and operating metrics in the quarters ahead."

Operating Results

Average Monthly Rents ("AMR") for properties owned prior to September 30, 2010 was $909 per suite at September 30, 2011, an increase of $11 per suite or 1.2% from the prior year.

Portfolio occupancy for properties owned prior to September 30, 2010 was 97.3% at September 30, 2011, up from 96.7% at September 30, 2010.

Overall portfolio AMR at September 30, 2011 was $894 per suite compared to $898 per suite at September 30, 2010. AMR at September 30, 2011 was impacted by properties acquired over the prior twelve months with lower AMR than existing properties.

Overall portfolio occupancy at September 30, 2011 was 96.7%, consistent with the prior year and up from 96.0% at June 30, 2011.

The REIT's operating results for the nine month period ended September 30, 2011 are not directly comparable to the corresponding prior period in 2010 as the REIT commenced operations on May 14, 2010, resulting in the corresponding period being only 140 days.

Property revenues for the three months ended September 30, 2011 were $42.3 million, up significantly from $21.7 million for the same period in the prior year, primarily due to the contribution of acquisitions completed over the prior twelve months. Property revenues for the nine months ended September 30, 2011 were $104.0 million compared to $33.1 million for the 140-day period ended September 30, 2010. Net Operating Income ("NOI") for the three months ended September 30, 2011 increased to $24.2 million from $13.0 million in the prior year due to the significant portfolio growth. For the nine months ended September 30, 2011, NOI was $56.8 million compared to $20.0 million for the 140-day period ended September 30, 2010. The NOI margin of 57.3% in the third quarter of 2011 was lower than the 60.0% in the prior year's third quarter due to lower margins attributable to acquisitions completed since September 30, 2010. Management expects the NOI margin will improve as occupancies and average rents rise and the REIT benefits from cost savings and operating synergies arising from its recently-completed management internalization and the increased size and scale of its portfolio. NOI margin for the nine months ended September 30, 2011 was 54.6% compared to 60.2% for the 140-day period ended September 30, 2010.

Basic Funds from Operations ("FFO") for the three months ended September 30, 2011 were $14.8 million ($0.27 per Unit), up from $8.0 million ($0.27 per Unit) in the third quarter of last year due primarily to the contribution from acquisitions. Basic FFO for the nine months ended September 30, 2011 was $34.2 million ($0.74 per Unit) compared to $12.3 million ($0.41 per Unit) for the 140-day period ended September 30, 2010.

Basic AFFO for the three months ended September 30, 2011 was $11.9 million ($0.22 per Unit), up from $6.5 million ($0.22 per Unit) in the third quarter last year due primarily to the contribution from acquisitions. AFFO for the nine months ended September 30, 2011 was $27.2 million ($0.59 per Unit) compared to $9.9 million ($0.33 per Unit) for the 140-day period ended September 30, 2010.

Strong Financial Position

The REIT maintained a strong balance sheet and liquidity position as at September 30, 2011 with a conservative debt to Gross Book Value ratio of 60.1%. The REIT also maintained a solid interest coverage ratio of 2.33 times for the nine months ended September 30, 2011. The weighted average interest rate on its mortgage portfolio of 3.75%, was down from 4.05% at December 31, 2010, and the weighted average term to maturity of 3.6 years, was up from 3.0 years at December 31, 2010. As at September 30, 2011, approximately 28% of the total mortgage portfolio was CMHC-insured, up from 8% at December 31, 2010. Management believes it will benefit from lower interest rate spreads as it continues to increase its exposure to CMHC-insured debt when mortgages mature.

During the third quarter, the REIT assumed $262.5 million of mortgages on the acquisition of new properties with a weighted average interest rate of 3.56% and a weighted average term to maturity of 2.20 years. In addition the REIT financed $178.8 million in new mortgages in the quarter with a weighted average interest rate of 3.36% and a weighted average term to maturity of 7.03 years. The REIT repaid mortgages of $17.9 million relating to the sale of two non-core properties.

Summary of Third Quarter Transactions:

On July 29, 2011, the REIT completed a public offering of 17,248,680 subscription receipts at $11.25 per subscription receipt, for gross proceeds of approximately $194 million, and $50 million aggregate principal amount of 5.40% extendible convertible unsecured subordinated debentures (the "2018 Debentures") of the REIT (the "July 2011 Offering").

On September 1, 2011, the REIT completed the indirect acquisition of a portfolio of 57 properties comprising approximately 7,500 residential suites in an aggregate of 94 residential buildings and three townhouse complexes located in the Provinces of Alberta, Ontario, Québec and Nova Scotia, as well as approximately 13,000 square feet of commercial space in London, Ontario (the "September 2011 Acquisition"). The consideration for the aggregate purchase price of approximately $740.4 million was satisfied by a combination of: (i) approximately $394.8 million of cash, funded using (A) approximately $216.8 million from the net proceeds of the July 2011 Offering, (B) approximately $170.0 million of proceeds from new mortgage debt secured against certain of the acquired properties, (C) the net cash proceeds from the sale of two properties for approximately $24.4 million and (D) cash on hand; (ii) the assumption of approximately $262.5 million aggregate principal amount of existing mortgage debt secured against the acquired properties; and (iii) the issuance to the vendor of approximately $83.0 million of Class B limited partnership units of subsidiary limited partnerships of the REIT ("Class B LP Units") and accompanying special voting units of the REIT.

On September 1, 2011, in connection with the September 2011 Acquisition, the REIT internalized its property and asset management functions. Pursuant to the terms of the agreement governing the management internalization, the REIT (i) terminated certain commercial relationships between the REIT and certain entities controlled by Mr. Daniel Drimmer (collectively with each other entity controlled by Mr. Drimmer, "DrimmerCo") (including the non-competition agreement), (ii) amended and restated the existing indemnity agreements and pledge agreements between the REIT and Drimmerco and (iii) amended the REIT's declaration of trust (the "DoT"). On September 1, 2011, upon completion of the management internalization, Daniel Drimmer and Alon Ossip resigned from the REIT's Board of Trustees.

During the quarter, the REIT's operating credit facility maturity date was extended to May 14, 2013. On September 1, 2011, in connection with closing of the September 2011 Acquisition, the borrowing limit under the Operating Credit Facility was increased to $65 million.

On August 2, 2011, the REIT completed the indirect acquisition of four low rise buildings in Etobicoke, Ontario. The consideration of approximately $15.1 million was satisfied in cash of approximately $4.9 million and proceeds from a new mortgage financing in the principal amount of approximately $10.2 million carrying an interest rate of 3.68% and a term of 6.2 years.

Full details of these recent transactions can be found in the REIT's Management Discussion and Analysis for the period.

Subsequent Event

On October 18, 2011, the REIT completed the indirect acquisition of a portfolio of 23 apartment properties in Halifax and Dartmouth, Nova Scotia and Moncton, Dieppe and Fredericton, New Brunswick comprising 1,261 suites.  The purchase price of approximately $64.9 million was satisfied by cash and proceeds of new mortgage financing of approximately $43.8 million. The new mortgage financing has an average rate of 3.33% and an average term to maturity of 6.5 years.

With the closing of this acquisition, the REIT gave notice to the existing third party manager responsible for managing the REIT's portfolio in Nova Scotia and New Brunswick that the REIT will take over the management of all of its properties in these provinces effective January 1, 2012. The additional scale of operations in place following the closing of the recent acquisition has made it cost effective to internalize the previously outsourced management function and management expects this will have a positive impact on future performance in the Atlantic Canada region.

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 21,500 high quality apartment and town house suites that are well-located in urban centres in Alberta, Ontario, Québec, New Brunswick and Nova Scotia.

Investor Conference Call

A conference call (and live audio webcast) hosted by the REIT's management team will be held Friday, November 11, 2011 at 11.15 a.m. (ET). The call-in numbers for participants are local/international (416) 849-2698 or North American Toll-Free at (866) 400-2270. Please connect with the conference call at least five minutes before the start time. An audio replay of the call will be available after the live call by dialing (416) 915-1035 or (866) 245-6755 and entering access code 962952#. A recording of the call will also be available on the REIT's website at www.tgareit.com.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

               
          As at
September 30,
2011
  As at
December 31,
2010
  As at
September 30,
2010
                   
Operational Information                  
Number of properties         151   67   65
Total suites         20,262   8,297   8,179
Occupancy %         96.7%   96.9%   96.6%
Weighted average in-place rent         $894   $901   $898
                       
Summary of Financial Information                  
Gross Book Value (1)     $1,978,647   $780,300   $779,298
Indebtedness (2)     $1,188,731   $466,773   $462,389
Indebtedness to Gross Book Value (3)     60.08%   59.82%   59.33%
Weighted average mortgage interest rate (4)     3.75%   4.05%   4.05%
Weighted average mortgage term to maturity     3.57 years   3.01 years   3.27 years
                   
  Three months
ended
September 30,
2011
  Three  months
ended
September 30,
2010
  Nine months
ended
September 30,
2011
  Period from
May 14, 2010 to
September 30,
2010
               
Summary of Financial Information              
Interest coverage (5) 2.38 x   2.69 x   2.33 x   2.69 x
Indebtedness coverage ratio (6) 1.73 x   1.87 x   1.60 x   1.99 x
Revenue from property operations $42,254   $21,735   $104,015   $33,140
NOI   $24,206   $13,041   $56,763   $19,960
Net income and comprehensive income $29,019   $2,772   $71,854   $10,173
FFO   $14,831   $8,030   $34,177   $12,278
FFO per unit - basic $0.27   $0.27   $0.74   $0.41
FFO per unit - diluted $0.27   $0.26   $0.74   $0.40
AFFO - basic $11,911   $6,522   $27,155   $9,945
AFFO - diluted $12,377   $6,776   $27,621   $10,344
AFFO per unit - basic and diluted $0.22   $0.22   $0.59   $0.33
Distributions per unit (annualized) - basic $0.75   $0.75   $0.75   $0.75
FFO payout ratio (7) 70.47%   70.00%   79.04%   69.95%
AFFO payout ratio (7) 87.74%   86.19%   99.48%   86.35%
                   
Units outstanding at period-end for FFO and AFFO per unit:              
  Weighted average (000s) - basic (8) 55,290   29,975   46,086   29,975
  Add: Unexercised Unit Options 27   -   34   -
    2018 Debentures 2,174   -   733   -
    IPO Debentures -   1,540   -   1,583
  Weighted average (000s) - diluted (8) 57,491   31,515   46,853   31,558

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 $26,922 and $11,207, unamortized financing costs and Canada Mortgage and Housing Corporation ("CMHC") premium of $5,692 and $160 at September 30, 2011 and December 31, 2010, respectively and contingent liabilities and includes face value of the 2018 Debentures of $50,000 and $nil at September 30, 2011 and December 31, 2010, respectively.
(3) Defined as Indebtedness divided by Gross Book Value.
(4) Excludes 2018 Debentures and IPO Debentures. Market weighted average mortgage interest rates at September 30, 2011, December 31, 2010 and September 30, 2010 were 4.54%, 3.86% and 2.96%, respectively.
(5) Defined as net income plus finance costs, less interest income and adjusted for non-cash items divided by interest expense, net of amortization of mortgage premium, distributions on Class B LP Units and Instalment note receipts.
(6) Contractual payments on mortgages, 2018 Debentures, IPO Debentures, and gives effect to the payments provided by DrimmerCo under the Instalment Notes.
(7) Based on FFO and AFFO and monthly distributions for the three and nine months ended September 30, 2011 and the pro-rated distributions for the 48 day period ended June 30, 2010 and monthly distributions for the three months ended September 30, 2010.
(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 net income/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.

A reconciliation of FFO and AFFO is provided in the "Non-IFRS Financial Measures" section of the MD&A. A reconciliation of NOI 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 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, prospectus or opportunities for the REIT or the real estate industry and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the REIT.  Particularly, statements regarding NOI margins, the REIT's assumption of property management in the Atlantic Canada region and the REIT's use of CMHC-insured mortgages 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", "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; TGIM and its affiliates will continue their involvement with the REIT; and 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.


SOURCE TransGlobe Apartment Real Estate Investment Trust

For further information:

Kelly Hanczyk
Chief Executive Officer
905-293-9400 ext. 1970

or

Leslie Veiner
Chief Financial Officer
(905) 293-9400 ext. 1985
lveiner@tgareit.com

Profil de l'entreprise

TransGlobe Apartment Real Estate Investment Trust

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