N@N

TransGlobe Apartment REIT announces second quarter 2011 results

^{Published on 2011-08-09 11:26:18 - Market Wire}
 

MISSISSAUGA, ON, Aug. 9, 2011 /CNW/ - TransGlobe Apartment Real Estate Investment Trust (TSX: TGA.UN) (the "REIT") announced today results for the three and six months ended June 30, 2011.

HIGHLIGHTS:

• Proposed internalization of property and asset management to enhance growth prospects (the "Management Internalization")
• Proposed acquisition of 57 properties (7,518 residential suites) and Instalment Notes for total purchase price of approximately $740.4 million (the "Acquisition") to significantly increase size and scale, further strengthen the portfolio
• Completed public offering of approximately $57.5 million of trust units ("Units") in May and approximately $244 million of subscription receipts and convertible debentures in July
• Completed approximately $107 million of acquisitions representing  924 suites during the second quarter
• Occupancies rise to 96.0% at June 30, 2011 from 94.9% at June 30, 2010
• Average monthly rents increase to $903 per suite at June 30, 2011 from $888 at June 30, 2010
• Acquisitions continue to make strong contribution to growth in revenues and adjusted funds from operations ("AFFO")

"Upon completion of the proposed acquisitions and internalization, the REIT will become one of Canada's largest residential landlords with a total portfolio of over 20,000 apartment suites that are well diversified in major markets across the country," commented Kelly Hanczyk, Chief Executive Officer. "Going forward, we will capitalize on the significant increase in our size and scale to further enhance organic growth through higher occupancies and average monthly rents, and efficiently manage our costs. We will also continue to grow our asset base through accretive acquisitions that further strengthen and diversify our portfolio. I am also pleased that to date we have rate locked approximately 90% of the required $170 million of new debt for the proposed acquisition at an average rate of 3.42% and an average term to maturity of 7.35 years."

Operating Results

Average monthly rents increased to $903 per suite at June 30, 2011, up from $888 at the same time last year. Average monthly rents increased in all regions in which the REIT operates, with the exception of Eastern Canada and Québec where average monthly rents were lower due to the impact of acquisitions completed subsequent to June 30, 2010 which had lower monthly rents. Overall portfolio occupancy at June 30, 2011 was 96.0%, up from 94.9% at June 30, 2010.

The REIT commenced operations on May 14, 2010 and the REIT's first financial statements were prepared for the 48-day period ended June 30, 2010. Given these factors, the REIT's financial performance for the three and six month periods ended June 30, 2011 are not directly comparable to the corresponding prior periods in 2010. Accordingly, comparisons to the REIT's financial performance for the three-month period ended March 31, 2011 have been provided.

Property revenues for the three months ended June 30, 2011 were $32.9 million, up 14% from the three months ended March 31, 2011 due primarily to the full quarter contribution of acquisitions completed in the first quarter of 2011 and acquisitions completed in the second quarter as well as improved occupancies and average monthly rents. Property revenues for the six months ended June 30, 2011 were $61.8 million.

Net operating income ("NOI") for the three months ended June 30, 2011 increased to $18.0 million from $14.6 million for the three months ended March 31, 2011 due to the higher revenues and lower utility costs. The NOI margin of 54.7% in the second quarter of 2011 was higher than the 50.4% in the first quarter of the year due primarily to lower utility costs. For the six months ended June 30, 2011, NOI was $32.6 million resulting in an NOI margin of 52.7% for the period.

Funds from Operations ("FFO") for the three months ended June 30, 2011 were $11.0 million ($0.25 per Unit), up from $8.3 million ($0.22 per Unit) in the first quarter of the year due primarily to the contribution from acquisitions, higher occupancies and average monthly rents, and lower utility costs. For the six months ended June 30, 2011, FFO was $19.3 million ($0.47 per Unit).

AFFO for the three months ended June 30, 2011 were $8.9 million ($0.20 per Unit), up from $6.4 million ($0.17 per Unit) in the first quarter of the year due to the contribution from acquisitions, higher occupancies and average monthly rents, and lower utility costs. For the six months ended June 30, 2011, AFFO was $15.2 million ($0.37 per Unit).

NOI,  FFO and AFFO do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS") as prescribed by the International Accounting Standards Board. See "Non-IFRS Financial Measures" below.

Strong Financial Position

The REIT maintained a strong balance sheet and liquidity position as at June 30, 2011 with a conservative debt to "Gross Book Value" (as defined in the REIT's declaration of trust ("DOT")) ratio of 59.0% and a solid interest coverage ratio of 2.45 times. The weighted average interest rate on its mortgage portfolio was 3.90% with a weighted average term to maturity of 3.4 years, up from 2.86 years as at March 31, 2011 and 3.01 years as at December 31, 2010. The REIT has now refinanced all its 2011 debt maturities.

Recent Acquisitions

During the second quarter, the REIT acquired a complex of seven buildings in the City of Québec aggregating 819 residential suites and approximately 162,000 square feet of commercial space. The purchase price of $98.6 million was satisfied with proceeds from the REIT's May 2011 public offering of Units and approximately $69.1 million aggregate principal amount of mortgage debt bearing an interest rate of 4.1% maturing in April 2013.

Additionally, the REIT acquired a three-storey 105 suite apartment building located in Moncton, New Brunswick during the quarter for $8.4 million in cash.

"These two acquisitions extended our presence in strong rental markets and will make a solid contribution to our results going forward," Mr. Hanczyk added.

Subsequent Events

On July 21, 2011, the REIT entered into agreements that will see the REIT internalize its asset and property management functions and acquire a portfolio of 7,518 apartment suites as well as instalment notes. The portfolio of 57 real estate properties (the "Acquisition Properties") located in Alberta, Ontario, Québec and Nova Scotia, comprise an aggregate of 33 high-rise, 31 mid-rise and 30 low-rise residential buildings, three townhouse complexes and a commercial building, each currently operated and owned or co-owned by affiliates of TransGlobe Investment Management Inc. ("TransGlobe). The purchase price of approximately $740.4 million for the Acquisition Properties and the Instalment Notes will be satisfied, through a series of transaction steps, by a combination of: (i) approximately $394.8 million of cash, which will be funded using (A) approximately $217 million from the net proceeds of the Offering (as described below), (B) approximately $170 million of proceeds from new mortgages to be secured by certain of the Acquisition Properties, (C) the net cash proceeds from the sale to TransGlobe of 100 Rideau Street, Oshawa, Ontario and 411 Ellerdale Street, Saint John, New Brunswick (the "Sale Properties") for approximately $24.4 million and (D) cash on hand; (ii) the assumption of approximately $262.6 million aggregate principal amount of existing mortgage debt on the Acquisition Properties; and (iii) the issuance to TransGlobe of approximately $83 million of Class B limited partnership units ("Class B LP Units") in new limited partnerships, the managing general partner of which is controlled by the REIT.

Following the completion of the Acquisition, it is expected that TransGlobe will hold an approximate 21.0% effective interest in the REIT through its ownership of Units, Class B LP Units and special voting units of the REIT (which accompany the Class B LP Units and provide the holder thereof with the same voting rights in the REIT as a Unit, "Special Voting Units").

Upon completion of the Management Internalization, Messrs Daniel Drimmer and Alon Ossip, having been previously appointed to the Board by TransGlobe pursuant to appointment rights in the DOT that will cease upon completion of the Management Internalization, will resign as Trustees and the Board of Trustees will thereafter be comprised of the six Trustees elected to the Board by the holders of Units and Special Voting Units (the "Unitholders") at the REIT's most recent annual meeting of Unitholders.

On July 29, 2011, the REIT completed a public offering of approximately 17.25 million 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 ("Debentures"). The net proceeds from the sale of the subscription receipts are being held in escrow and will be used to finance part of the purchase price of the Acquisition. Each subscription receipt entitles a holder thereof to receive one Unit upon completion of the Acquisition. The Debentures will have an initial maturity date of the earlier of (i) the termination of the Acquisition and (ii) October 31, 2011, which will be extended to September 30, 2018 upon completion of the Acquisition. The Debentures are convertible at the option of the holder into Units at a conversion price of $15.75 per Unit.

As the Acquisition, and certain other matters including the transfer of the Sale Properties to TransGlobe, constitute "related party transactions" under Multilateral Instrument 61-101 of the Ontario Securities Commission and the Autorité des marchés financiers (Québec), such matters are required to be approved by majority of the Unitholders that do not have an interest in such matters, the approval of which is being sought at a Unitholders' meeting scheduled to be held on August 31, 2011. The Acquisition is expected to close on or about September 1, 2011 and, in addition to the aforementioned Unitholder approval, is subject to completion of the Management Internalization which is also expected to occur on or about September 1, 2011, and customary closing conditions, including satisfactory due diligence, lender and regulatory consents.

In addition to the Acquisition detailed above, on August 2, 2011 the REIT indirectly acquired two residential properties in Etobicoke, Ontario for a purchase price of approximately $15.1 million satisfied by cash on hand and proceeds from a new mortgage financing in the principal amount of approximately $10.2 million secured against the property.

About TransGlobe Apartment Real Estate Investment Trust

TransGlobe Apartment Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust owning a growing portfolio of high quality apartment and town house properties 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 Wednesday, August 10, 2011 at 9:00 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 738396#. A recording of the call will also be available on the REIT's website at [ www.tgareit.com ].

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 are unlikely to be comparable to 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 FFO to be an important measure 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 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.

Reconciliations of the REIT's net (loss)/income and comprehensive (loss)/income calculated in accordance with IFRS to FFO and then to AFFO, and of the REIT's rental income to NOI, are provided in the management's discussion and analysis of the REIT for the three and six months ended June 30, 2011.

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 position and results of operations 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 the REIT's future outlook and anticipated events or results 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 future results, performance, achievements, prospects or opportunities for the REIT or the real estate industry, including statements regarding the Acquisition or Management Internalization, 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, including the management's discussion and analysis of the REIT for the three and six months ended June 30, 2011 and the REIT's management information circular dated August 2, 2011.  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 the risks identified or 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 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.