REVIEW
OF 3Q 2012 FINANCIAL RESULTS
Company
Operations
Ø Total revenue
was $90,139, up 42% vs. 3Q11
Ø Rental revenue
was $83.7 vs. $82.9 in 2Q12—COMPANY
RECORD
Ø FFO was
$18,058 vs. $8,026 in 2Q12
Ø Dividends from
securities portfolio was $4,999
Ø Securities
portfolio’s return was 0.26%
Ø Share price is
$12.07 per share
Ø Member shares
issued since inception: 151,855 (61 share members)
Revenue:
M1’s third quarter rental revenue was $83,723 compared to $82,883 and $81,728
during the 2Q12 and 1Q12 respectively. Low turnover and efficient rental
operations have contributed to this positive trend and stability. Our securities
portfolio generated $4,999 in dividends compared to $4,472 during 2Q12. We expect dividend income to increase as we
focus on growing our securities portfolio.
Operating
expenses: Our operating expenses for 3Q12 were $69,217
compared to $81,804 in 2Q12. We will continue to invest money to improve our properties;
we invested $25,244 in maintenance and repair during 3Q12. All operating
expenses were in line with our budget.
Depreciation accounted for $23,347 of operating expenses.
Funds
From Operations (FFO): M1’s taxable net loss for 3Q12 was $5,286;
however by backing out property depreciation the company experienced a positive
FFO of $18,058. Interest expense for 3Q12
was $26,211. Our average cost of capital is 5.69%. Management will continue
to seek opportunities to refinance liabilities in order to lower interest
expense, allowing the company to use those savings for property renovations
and REIT investments.
Balance
sheet: Cash, cash
equivalents, and short-term investments as of September 30, 2012 were $524,435.
Short-term investments account for $519,146. There was no change to property
valuations. The company’s cash decreased by $144,670 and our total
liabilities decreased by $182,287 to $1,841,596. This was a result of using loan proceeds,
received at the end of 2Q12, to reduce short-term debt. Share members’ equity
increased to $1,832,839. During 3Q12, M1 issued 3,243 member shares.
Securities portfolio: As of September 30, 2012, M1’s securities portfolio
was valued at $519,146, approximately 14.1% of total assets. The portfolio is
comprised of real estate investment trusts and mutual funds, allocating 22%
in residential, 10% in office and industrial, 12% in mortgage, 18% in retail,
8% in student housing, and 30% in CGM Realty fund. Our three largest holdings were in the
following mutual fund/REITs: CGM
Realty fund, Realty Income, and Annaly Capital. During the 3Q12, we added to our positions
in Home Properties, Annaly Capital, American Campus Communities, and Realty
Income.
Our securities portfolio performance
during the third quarter was 0.26%; since inception our securities portfolio
has returned 26.75%.
Property management: During the third quarter we focused
on rental operations and routine maintenance. The summer was unusually hot which had a
significant impact on our A/C units.
We spent $9,954 on repairing or replacing air conditioners. We have three HVAC systems to replace
during 4Q, a cost of $9,000.
We will continue
to focus on routine maintenance and repair during the 4Q. In addition, we
have planned an exterior renovation on our 10-unit apartment complex on Highland
avenue in Joplin. Our scope of work consists of replacing the roof,
installing new gutters, painting the exterior, and replacing eighteen
windows. We have budgeted $40,000 for
this exterior renovation. In August, Highland
avenue was reappraised at $300,000. According
to the appraiser, after the renovations its value will increase to
$350,000.
We ended
the quarter with ten vacancies, resulting in an 88% occupancy rate. Four vacancies are from normal turn-over activities
and the other six vacancies are apartments we have not rented since
completing the renovations last quarter.
We are being very selective on our tenants, but expect to have these
units rented by end of year.
Acquisition/Disposition: None
Guidance
for 2012: M1’s 2012 revenue goal is increased to $334,000. We
have experienced a significant increase in our rental income in 2012 due to
improved tenant payment operations and apartment availability. We expect our
rental income to continue to grow as we rent our newly renovated apartments and
continue regularly scheduled annual rental rate increases. Operating expenses are budgeted to remain
in line with our expected revenue as we execute our preventive maintenance
plans. Beginning July 1, 2012, we will
set aside a portion of our net income to be distributed to share members in
the form of a distribution with the first payment on January 31, 2013.
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