REVIEW
OF 4Q 2012 AND 2012 FINANCIAL RESULTS
Company
Operations
Ø Total revenue (Operating
and Investment) was $174,925 for 4Q, $446,652 for 2012
Ø Rental revenue
was $95.9 vs. $83.7 in 3Q12—COMPANY
RECORD
Ø FFO was
$17,524 (excluding trading), $52,740 (including trading) in 4Q12
Ø Dividends from
securities portfolio in 4Q was $6,409 vs. $4,999 in 3Q, $20,361 for 2012
Ø Share price increased
3.56% to $12.50 per share
Ø Member shares
issued since inception: 155,496 (60 share members)
Revenue: M1’s fourth quarter
total revenue was $174,925, which included rental income, dividends, short-term
and long-term capital gains and financing activities. Rental revenue was $95,924 compared to $83,723
and $82,883 during the 3Q12 and 2Q12 respectively. Apartment availability, low
turnover and efficient rental operations have contributed to this positive
trend and stability. Our securities portfolio generated $6,409 in dividends
compared to $4,999 during 3Q12. Total
dividends for 2012 were $20,361. We expect dividend income to increase as we continue
to focus on growing our securities portfolio.
Operating
expenses:
Our operating expenses for 4Q12 were $115,532. We will continue to invest
money to improve our properties; we invested $30,672 in maintenance and
repair during 4Q12. All operating expenses were in line with our budget. Depreciation accounted for $23,347 of
operating expenses.
Funds
From Operations (FFO): M1’s
taxable gain for 4Q12 was $59,393; however by adding back property
depreciation and subtracting capital gains the company experienced a positive
FFO of $47,523. Interest expense for 4Q12
was $26,487 and $103,395 in 2012. Our average cost of capital decreased to
5.16%. 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.
Distributions: M1 will begin making distributions to share members in January
2013. Distributions are based on FFO
from the previous six months of operations.
During July 1 – December 31, 2012, FFO was $65,581. However, considering $30,000 was in
maintenance credits we will use $35,581 as our baseline for calculating distributions. M1 will distribute 40% of FFO, resulting in
a distribution of $14,232 or .09 per share.
The distributions will be paid on January 31, 2013.
Balance
sheet: Cash, cash equivalents, and short-term
investments as of December 31, 2012 were $919,480. Short-term investments
account for $784,681. Our property portfolio increased $725,000 due to a
re-appraisal at Highland Ave following renovations ($40k) and four new
property purchases ($685k). The company’s total liabilities increased to
$2,850,387. This was a result of new
loans on property purchases and debt added to pay for renovations. Share
members’ equity increased to $1,944,093. During 4Q12, M1 issued 3,641 member
shares.
Securities portfolio: As of December 31, 2012, M1’s securities portfolio
was valued at $784,681, approximately 16.36% of total assets. The portfolio is
comprised of real estate investment trusts allocating 25% in residential, 16%
in office and industrial, 20% in mortgage, 28% in retail, 7% in student
housing, and 4% in Vanguard REIT. Our three
largest holdings were in the following REITs:
Realty Income, National Retail and Annaly Capital. During the 4Q12, we added to our positions
in American Campus Communities, D.R. Horton, Mack-Cali, Home Properties,
Annaly, Realty Income and Vanguard REIT.
We reduced our holdings in UDR.
We initiated new positions in American Capital, Boston Properties, KB
Homes, Kimco, National Retail, and Toll Brothers. Our securities portfolio performance during the fourth quarter was -.77%;
since inception our securities portfolio has returned 11.88%.
Property management: The economy in Joplin is strong as the city
continues to rebuild following the tornado in May 2011. With increased construction activities we
are seeing an increase in demand for housing.
By being in front of this trend and focusing on improving our properties
we are seeing a steady flow of prospective tenants leading to a 93.15%
occupancy rate. In Macomb we have been
100% occupied, however we will be experiencing some turnover and possible
vacancies for the spring semester as tenants graduate or leave for spring
internships. Additionally, this past year has seen a dramatic increase in
rents collected as we increased our rental income each quarter during the
year, moving from $81,728 in the 1Q to $95,924 in the 4Q. We invested $118,279 in repairs/renovations
during 2012; this represents 26.5% of our total income. We expect this percentage to move toward
15% of total income in 2013.
During
the 4Q, we completed our planned exterior renovation on our 10-unit apartment
complex on Highland avenue in Joplin. Our scope of work consisted of
replacing the roof, installing new gutters, painting the exterior, and
replacing eighteen windows.
During
the 1Q13 we will complete repairs on our new properties (Kenser and Marigold)
which are budgeted at $20,000.
Acquisition/Disposition: We purchased four properties (3226 Kenser,
1033-35 Marigold, 1037-39 Marigold, and 1716 Sophia) during the 4Q12. The purchase was initiated by our banking
partner, Great Southern Bank, who offered the properties to us to avoid
current owner default. After review of
the properties and receiving an appraisal from our realtor we agreed to
assume the mortgages (a loan of $640,000).
The properties appraised at $685,000 plus we received a $30,000
maintenance credit. As a result of
this transaction we achieved immediate equity of $45,000 plus $30,000 in
cash. Additionally, our loan terms are:
3.25% interest, 25-year amortization.
Guidance
for 2013: M1’s 2013 total revenue goal is $400,000. We have
experienced a significant increase in our total income in 2012 due to
improved tenant payment operations, apartment availability, dividends, and
trading activity. We expect our rental income to continue to grow as we rent
our newly purchased properties and continue regularly scheduled annual rental
rate increases. Operating expenses are
budgeted to remain in line (80%) with our expected revenue as we execute our preventive
maintenance plans. We will begin
distributing a portion of our funds from operations in 2013 and plan to
gradually increase the amount as we grow our business, driving higher revenue
and increasing our funds from operations.
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