Milestone Apartments REIT Announces Six Property Portfolio Acquisition for US$242 Million
Comprising 1,460 Apartment Units with Weighted Average Year Built of 2005 Continuing to Decrease
Average age of Portfolio & 10% Increase to Monthly Cash Distribution
Also Announces Bought Deal Equity Offering of Approximately C$175 Million of REIT Units and Closing of
US$47.0 Million Acquisition in Atlanta
NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR DISSEMINATION IN THE UNITED STATES
Toronto / Dallas, October 19, 2016 - 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.
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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
Colorado
Denver
Loveland
168
84
84
0
1999
97.1%
1,293
Oklahoma
Oklahoma
City
North
Central
216
81
125
10
2000
91.6%
845
Eagle
Ridge
Quail
Landing
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Casa
Florida
Orlando
Mirella
San
Costa
Texas
Antonio
Bella
Total/Weighted Average
(1)
(2)
(3)
(4)
Windermere
276
60
156
60
2013
/2015(3)
96.7%
1,474
Stone Oak
344
216
104
24
2007
95.4%
1,073
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
(ii) Gross proceeds from the bought deal equity Offering(1)
(iii) Net proceeds from the refinancing of the existing REIT mortgage debt facility
(iv) The Proposed Disposition, working capital and the REIT’s revolving line of credit
Total
US$103.7
US$133.5
US$30.3
US$29.4
US$296.9
(1) Based on a US$ 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.
(i)
(ii)
(iii)
(iv)
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.
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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)
State
Market
Arizona
Colorado
Colorado
Florida
Florida
Florida
Georgia
Missouri
North Carolina
Oklahoma
Tennessee
Texas
Texas
Texas
Texas
Utah
Total
Phoenix
Colorado Springs
Denver
Jacksonville
Orlando
Tampa
Atlanta
Kansas City
Charlotte
Oklahoma City
Nashville
Austin
Dallas/Fort Worth
Houston
San Antonio
Salt Lake City
Total
Asset
Count
Unit
Count
2
-3
3
3
3
5
1
5
-4
3
20
14
4
2
72
674
-963
1,390
1,087
632
1,394
280
1,207
-1,858
832
5,968
4,272
1,221
768
22,546
Pro-Forma
Net
Acquisitions
in Units
-276
168
-276
-275
-180
216
--(280)
-344
-1,455
Asset
Count
2
1
4
3
4
3
6
1
6
1
4
3
19
14
5
2
78
Unit
Count
674
276
1,131
1,390
1,363
632
1,669
280
1,387
216
1,858
832
5,688
4,272
1,565
768
24,001
Units %
of Total
2.8%
1.1%
4.7%
5.8%
5.7%
2.6%
7.0%
1.2%
5.8%
0.9%
7.7%
3.5%
23.7%
17.8%
6.5%
3.2%
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
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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, proforma 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
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