REVIEW
OF 2Q 2013 FINANCIAL RESULTS
Company
Operations
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Ø Total revenue (Operating
and Investment) was $215,090 for 2Q13
Ø Rental revenue
was $176K vs. $106K in 1Q13—COMPANY
RECORD
Ø Funds from
operations (FFO) was $38,993 during 2Q13
Ø Dividends from
securities portfolio in 2Q13 was $16,951 vs. $12,811 in 1Q13
Ø Share price decreased
1% to $12.47 per share
Ø Member shares
issued since inception: 170,547 (64 share members)
Revenue: M1’s second quarter
total revenue was $215,090, which included rental income, dividends, and short-term
and long-term capital gains/losses. Rental
revenue was $176,662 compared to $106,388 and $95,924 during the 1Q13 and 4Q12
respectively. Our new acquisition (Oxford Apartments) on April 1, 2013 and
efficient rental operations have contributed to this positive trend and
stability. Our securities portfolio generated $16,951 in dividends compared
to $12,811 during 1Q13. We expect
dividend income to level off as we turn our focus to reducing debt instead of
growing our securities portfolio.
Operating
expenses:
Our operating expenses for 2Q13 were $177,523. We will continue to invest
money to improve our properties; we invested $34,535 in renovations,
maintenance, and repairs during 2Q13. Our next two largest expenses were
utility expense ($10,516) and property insurance ($9,957). All operating
expenses were in line with our budget.
Depreciation accounted for $42,398 of operating expenses.
Funds
From Operations (FFO): M1’s
taxable gain for 2Q13 was $37,566; however by adding back property
depreciation and subtracting capital gains & principal payments, the
company experienced a positive FFO of $38,993. Interest expense for 2Q13 was $43,637. Our
average cost of capital decreased to 4.21%. 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 paid its first distribution to share members in January 2013.
Distributions are based on FFO from the previous six months of
operations. During Jan 1 – June 30,
2013, FFO was $65,972. M1 will distribute
30% of FFO, resulting in a distribution of $20,223 or .12 per share. The distribution will be paid on July 31,
2013. In order to pay-off the debt
incurred in securing the down payment for our recent acquisition (Oxford
Apartments), management decided to reduce the distribution to 30% of funds
from operations for the first half of 2013.
Balance
sheet: Cash, cash equivalents, and short-term
investments as of June 30, 2013 were $1,003,930. Our REIT portfolio accounts
for $984,222. Our property portfolio increased $1,737,000 due to a
re-appraisal of 1505 Michigan and our new acquisition (Oxford Apartments). Total
assets are $6,538,930. The company’s total liabilities increased to
$4,411,425 due to our newest acquisition. Share members’ equity increased to
$2,127,505. During 2Q13, M1 issued 9,128 member shares and increased our M1
family by two.
Property management: The economy in Joplin is continuing to
improve as major reconstruction projects are underway. We have several apartments rented by
contractors/workers who are rebuilding the hospital and high school. Many
apartment complexes are also under construction; however until they are
complete, the demand far outweighs the supply. Our occupancy rate decreased slightly from 96.55%
(end of 1Q13) to 94.07% at the end of 2Q13 due to higher than normal turnover
during the month of June.
Additionally, this past quarter has seen another record in rents
collected. M1 has increased our rental income each quarter for the past six
quarters in a row, moving from $81,728 in 1Q12 to $176,662 in 2Q13. We invested $34,535 in repairs/renovations
during 2Q13; this represents 19.5% of our rental income. We expect this percentage to move toward
15% of rental income by the end of 2013.
During 2Q13
we completed the acquisition of 3320/3330 Texas Ave, Joplin, MO, aka “Oxford
Apartments”. As of the end of the
quarter, 47 of the 48 units are rented.
Acquisition/Disposition: We finalized
our single acquisition during the 2Q with the purchase of 3320/3330 Texas Ave
in Joplin, MO aka “Oxford Apartments”.
Oxford Apartments is a 48-unit apartment complex. We purchased the
property for $1,710,000. The operating income is $134,309, making the cap
rate of this property 7.9%. Additionally,
the seller financed the loan, agreeing to 3.75% interest, 5-year balloon, and
20-year amortization. After debt service, the net income is $35,415,
resulting in an 11% return on capital, assuming a down payment of $320,000.
Guidance
for 2013: M1’s 2013 total revenue goal is increased to $700,000.
We have experienced a significant increase in our total income during the
first half of 2013 due to improved tenant payment operations, apartment
availability, dividends, and trading activity. We expect our rental income to
grow as we 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 have begun
distributing funds from operations 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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