/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, Nov. 7, 2018 /CNW/ - Starlight U.S.
Multi-Family (No. 5) Core Fund (TSXV: STUS.A) (TSXV: STUS.U) (the
"Fund") announced today its results of operations and financial
condition for the three and nine months ended September 30, 2018 (the "Third
Quarter").
All amounts in this press release are in thousands of
United States ("U.S.") dollars
except for average monthly rent ("AMR") or unless otherwise stated.
All references to "C$" are to Canadian dollars.
Third Quarter Highlights
- Revenue from property operations for the Third Quarter was
$28,283, a 10.9% increase over the
same period in the prior year ($25,507) reflecting growth from net acquisition
activity and AMR growth of 3.5%.
- Economic occupancy for the three months ended September 30, 2018 was 93.5%, representing a 40
basis point increase compared to the same period in 2017.
- During the Third Quarter, the Fund's AMR increased by 2.0% on
an annualized basis and occupancy improved by 90 basis points
compared to the second quarter of 2018.
- NOI for the three months ended September
30, 2018 was $16,078, a 13.3%
increase over the same period in the prior year, primarily due to
new properties acquired as part of the Fund's capital recycling
program as well as increases in AMR and strong ancillary income
growth partly offset by higher property operating costs and
taxes.
- Net (loss) income and comprehensive (loss) income for the Third
Quarter was a loss of $2,614, in
comparison to income of $40,941 for
the same period in the prior year. Net (loss) income and
comprehensive (loss) income for the three months ended September 30, 2017 was primarily driven by an
$81,730 fair value increase on
investment properties.
- Subsequent to the Third Quarter, the Fund refinanced all of its
outstanding debt to strategically reposition the portfolio's debt
structure (see "Subsequent Events") in order to fix the interest
rate on the majority of the Fund's indebtedness, significantly
reduce the weighted average interest rate on the Fund's mortgages
payable and extend the weighted average term to maturity on the
mortgages payable. The refinancing of the Fund's debt consisted
of:
-
- The Fund entering into an agreement for a new pooled mortgage
secured by all 23 properties of the Fund for total proceeds of
approximately $800,450 and comprised
of three tranches with a weighted average term to maturity of 6.1
years and a weighted average interest rate of approximately 3.84%*.
The refinancing resulted in the Fund fixing the interest rate on
approximately 80% of its mortgages payable while reducing the
Fund's weighted average interest rate on its mortgages payable by
approximately 52 basis points and extending the weighted average
term to maturity to 6.1 years;
- The Fund entering into a third amending agreement to the
unsecured credit facility which allows the Fund to borrow up to
$130,000;
- Repayment of the mortgages payable and the amounts outstanding
under the Fund's credit facility which resulted in net proceeds
after transaction costs of $4,095
(see "Subsequent Events").
*$160,090 of
variable-rate mortgages based on the U.S. 30-day London Interbank
Offered Rate ("LIBOR") at October 31,
2018
Property Highlights for the Third Quarter Including a
Comparison to the Same Period in the Prior Year:
- Portfolio AMR as at September 30,
2018 was $1,230, representing
an increase of 3.5% from $1,188 at
September 30, 2017. AMR growth was
particularly strong in Orlando/Tampa
(7.2%), Dallas (6.3%) and
Houston (3.2%). Economic occupancy
for the three months ended September 30,
2018 was 93.5%, representing a 40 basis point increase
compared to the same period in 2017.
- Same property AMR as at September 30,
2018 was $1,217, representing
a 1.8% increase from $1,195 at
September 30, 2017. Same property AMR
growth was particularly strong in Orlando/Tampa
(4.6%). Same property economic occupancy for the three months ended
September 30, 2018 was 93.7%,
representing a 70-basis point increase in comparison to the same
period in the prior year.
Financial Condition and Operating Results
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As at
September 30, 2018
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As at
December 31, 2017
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Operational
Information
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Number of
properties
|
|
|
|
23
|
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23
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Total
suites
|
|
|
|
7,289
|
|
7,127
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Economic occupancy
(1)
|
|
|
|
92.3%
|
|
91.8%
|
AMR (in actual
dollars)
|
|
|
$
|
1,230
|
$
|
1,196
|
AMR per square foot
(in actual dollars)
|
|
|
$
|
1.27
|
$
|
1.25
|
|
|
|
|
|
|
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Summary of
Financial Information
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|
|
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Gross book value
(2)
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|
|
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$1,385,694
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$1,267,840
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Indebtedness
(2)
|
|
|
|
$898,592
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$808,989
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Indebtedness to gross
book value
|
|
|
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64.85%
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63.81%
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Weighted average
mortgage interest rate
|
|
|
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4.32%
|
|
3.60%
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Weighted average
mortgage term to maturity
|
|
|
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3.94 years
|
|
4.16 years
|
|
Third
Quarter
|
Three months
ended
September 30, 2017
|
|
Nine months
ended
September 30, 2018
|
|
Nine months
ended
September 30, 2017
|
|
|
|
|
|
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Summary of
Financial Information
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|
|
|
|
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Revenue from property
operations
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$28,283
|
$25,507
|
|
$82,367
|
|
$74,386
|
Property operating
costs
|
($7,666)
|
($7,048)
|
|
($21,888)
|
|
($19,763)
|
Property taxes
(3)
|
($4,539)
|
($4,267)
|
|
($13,561)
|
|
($12,439)
|
NOI
|
$16,078
|
$14,192
|
|
$46,918
|
|
$42,184
|
Net (loss) income and
comprehensive (loss) income
|
($2,614)
|
$40,941
|
|
$8,846
|
|
$48,553
|
FFO
|
$3,553
|
$6,145
|
|
$9,428
|
|
$16,796
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FFO per unit - basic
and diluted
|
$0.07
|
$0.13
|
|
$0.19
|
|
$0.34
|
AFFO
|
$4,601
|
$6,267
|
|
$14,668
|
|
$20,344
|
AFFO per unit - basic
and diluted
|
$0.09
|
$0.13
|
|
$0.30
|
|
$0.41
|
Interest Coverage
Ratio
|
1.52 x
|
2.10 x
|
|
1.56 x
|
|
2.24 x
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Indebtness Coverage
Ratio
|
1.52 x
|
1.91 x
|
|
1.54 x
|
|
2.05 x
|
FFO payout
ratio
|
175.7%
|
100.1%
|
|
199.0%
|
|
109.6%
|
AFFO payout
ratio
|
135.7%
|
98.1%
|
|
127.9%
|
|
90.5%
|
Weighted average
units Outstanding (000s) - basic and diluted
|
48,967
|
49,024
|
|
49,003
|
|
49,126
|
Notes:
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(1)
Economic occupancy for the nine months
ended September 30, 2018 and year-ended December 31,
2017.
|
(2) The
December 31, 2017 gross book value and Indebtedness includes the
Villages at Sunset Ridge which was classified as held for
sale.
|
(3)
Property taxes were adjusted to exclude
the International Financial Reporting Interpretations Committee 21
- Levies ("IFRIC 21") adjustment and treat property taxes as an
expense that is amortized during the fiscal year for the purposes
of calculating NOI.
|
Financial Position
As at September 30, 2018, the
Fund's indebtedness to gross book value was 64.85%, representing an
increase from 63.81% at December 31,
2017. The increase in indebtedness to gross book value was
primarily related to the refinancing of five of the Fund's
properties during the three months ended March 31, 2018. The Fund's interest coverage
ratio for the Third Quarter was 1.52x in comparison to 2.10x for
the three months ended September 30,
2017. The decrease in the interest coverage ratio, in
comparison to the same period in the prior year was primarily
related to the increase in interest expense as a result of
increases in LIBOR and a higher mortgages payable balance relating
to net acquisitions and refinancing activity, being partially
offset by NOI growth.
Cash Provided by Operating Activities to AFFO
Adjusted funds from operations ("AFFO") for the Third Quarter
was $4,601 (2017 - $6,267). AFFO payout ratio was 135.7% for the
Third Quarter (2017– 98.1%). The decrease in AFFO and the increase
in the payout ratio was primarily related to higher interest on
mortgages payable due to increases in LIBOR being partly offset by
NOI growth across the portfolio.
The Fund was formed as a closed-end, limited partnership with an
initial term of three years, a target yield of 6.5% and a targeted
minimum 12% pre-tax investor internal rate of return across all
classes of units. Although the payout ratio was in excess of 100%,
distributions have been maintained at 6.5% while interest costs
have increased as a result of increases in LIBOR since the Fund's
inception. The Fund refinanced all of its outstanding indebtedness
and continues to focus on its active management strategy which the
manager of the Fund expects will yield improvements in the AFFO
payout ratio in future periods. The Fund believes that maintaining
the targeted distributions is in the best interests of investors
based on the Fund's terminal nature as compared to a perpetual
real-estate investment trust and the Fund's investment objectives
and strategy.
Reconciliation of cash provided by operating activities
determined in accordance with International Financial Reporting
Standards ("IFRS") to AFFO for the Third Quarter along with the
comparative 2017 period was as follows:
|
|
|
|
|
|
Third
Quarter
|
Three months
ended
September 30, 2017
|
Nine months
ended
September 30, 2018
|
Nine months
ended
September 30, 2017
|
Cash provided by
operating activities
|
$
|
8,324
|
$
|
13,988
|
$
|
37,266
|
$
|
38,670
|
|
Less: interest
paid
|
|
(9,533)
|
|
(6,441)
|
|
(26,397)
|
|
(16,789)
|
Cash (used in)
provided by operating activities - including interest
paid
|
|
(1,209)
|
|
7,547
|
|
10,869
|
|
21,881
|
Add /
(Deduct):
|
|
|
|
|
|
|
|
|
|
Change in non-cash
operating working capital
|
|
7,164
|
|
(635)
|
|
3,822
|
|
(2,644)
|
|
Change in restricted
cash
|
|
1,556
|
|
3,245
|
|
(248)
|
|
4,209
|
|
One-time Plan of
Arrangement costs
|
|
937
|
|
-
|
|
937
|
|
152
|
|
Fair value adjustment
of investment properties (including IFRIC 21)
|
|
(3,451)
|
|
(3,436)
|
|
(466)
|
|
(1,988)
|
|
Realized foreign
exchange loss
|
|
-
|
|
(85)
|
|
208
|
|
(132)
|
|
Current taxes - U.S.
withholding taxes and tax on dispositions
|
|
-
|
|
12
|
|
734
|
|
36
|
|
Service fees related
to class A and class U units
|
|
151
|
|
155
|
|
452
|
|
474
|
|
Purchase of Interest
rate cap agreement
|
|
-
|
|
16
|
|
-
|
|
12
|
|
Sustaining capital
expenditures and suite renovation reserve
|
|
(547)
|
|
(552)
|
|
(1,640)
|
|
(1,656)
|
AFFO
|
$
|
4,601
|
$
|
6,267
|
$
|
14,668
|
$
|
20,345
|
Subsequent Events
- On October 29, 2018, the Fund
entered in a new interest rate cap agreement associated with the
variable portion of the new mortgages payable entered into under
the mortgage refinancing (as defined below). The new interest rate
cap covers a notional amount of $160,000, has a three year-term and interest rate
cap of 5.35%.
- On October 31, 2018, the Fund
entered into an agreement for a new pooled mortgage secured by all
23 properties of the Fund for total proceeds of approximately
$800,450 which is comprised of three
tranches (the "Mortgage Refinancing") as follows:
-
- $400,225 six year tranche with
interest fixed at 3.92% and interest only payments for five
years
- $240,135 seven year tranche with
interest fixed at 3.95% and interest only payments for five
years
- $160,090 five year tranche with
interest at LIBOR + 1.15% and interest only payments for three
years.
The Mortgage Refinancing carries a weighted average interest
rate of 3.84% (based on LIBOR at October 31,
2018) and a weighted average term to maturity of 6.1
years.
- On October 31, 2018, the Fund
entered into a third amending agreement for its unsecured credit
facility (the "Credit Facility") with a Canadian chartered bank
which allows the Fund to borrow up to $120,000 at an initial rate of 3.50% over LIBOR
and a one-year term. The Credit Facility carries an option to
increase the total borrowing to $130,000. Subsequent to the amendment, the Fund
has drawn an amount of $120,000 on
the Credit Facility which was used, in combination with the
proceeds from the Mortgage Refinancing, to repay the existing
mortgages payable of approximately $880,117 and the amounts outstanding under the
previous tranches of the Credit Facility of $18,300.
About Starlight U.S. Multi-Family (No. 5) Core Fund
The Fund is a limited partnership formed under the Limited
Partnerships Act (Ontario) for
the primary purpose of indirectly acquiring, owning and operating a
portfolio of diversified income producing rental properties in the
U.S. multi-family real estate market. The Fund currently owns 23
properties, consisting of 7,289 suites with an average year of
completion of 2012.
For the Fund's complete consolidated financial statements and
management's discussion and analysis ("MD&A") for the Third
Quarter and any other information relating to the Fund, please
visit www.sedar.com. Further details regarding the Fund's unit
performance and distributions, market conditions where the Fund's
properties are located, performance by the Fund's properties and a
capital investment update are also available in the Fund's
November 2018 Newsletter which is
available on the Fund's profile at www.starlightus.com.
Non-IFRS Financial Measures
The Fund's consolidated financial statements are prepared in
accordance with IFRS. Certain terms used in this press
release including AFFO, AFFO payout ratio, AMR, economic occupancy,
Funds from Operations ("FFO"), FFO payout ratio, gross book value,
indebtedness, indebtedness coverage ratio, indebtedness to gross
book value, interest coverage ratio, NOI, same property AMR, same
property economic occupancy, same property NOI and same property
NOI margin (collectively, the "non-IFRS measures") as well as other
measures discussed elsewhere in this press release, do not have a
standardized definition prescribed by IFRS and are, therefore,
unlikely to be comparable to similar measures presented by other
reporting issuers. The Fund uses these measures to better
assess the Fund's underlying performance and financial position and
provides these additional measures so that investors may do the
same. Details on non-IFRS measures are set out in the Fund's
MD&A for the Third Quarter and are available on the Fund's
profile on SEDAR at www.sedar.com.
Forward-looking Statements
Certain statements contained in this press release constitute
forward-looking information within the meaning of Canadian
securities laws. Forward-looking information is provided for the
purposes of assisting the reader in understanding the Fund's
financial performance, financial position and cash flows 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 future results, acquisitions, performance, achievements,
events, prospects or opportunities for the Fund or the real estate
industry and may include statements regarding the financial
position, business strategy, acquisitions, budgets, litigation,
projected costs, capital expenditures, financial results, occupancy
levels, AMR, taxes and plans and objectives of or involving the
Fund. In some cases, forward-looking information can be
identified by terms such as "may", "might", "will", "could",
"should", "would", "occur", "expect", "plan", "anticipate",
"believe", "intend", "seek", "aim", "estimate", "target", "goal",
"project", "predict", "forecast", "potential", "continue",
"likely", "schedule", or the negative thereof or other similar
expressions concerning matters that are not historical facts.
Forward-looking information necessarily involves known and
unknown risks and uncertainties, which 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, assumptions may not be correct and objectives,
strategic goals and priorities may not be achieved. A variety of
factors, many of which are beyond the Fund's control, affect the
operations, performance and results of the Fund and its business,
and could cause actual results to differ materially from current
expectations of estimated or anticipated events or
results.
Information contained in forward-looking information 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 inventory of multi-family real estate
properties; the availability of properties for acquisition and the
price at which such properties may be acquired; the availability of
mortgage financing and current interest rates; the extent of
competition for properties; the population of multi-family real
estate market participants; assumptions about the markets in which
the Fund operates; the ability of Starlight Investments US AM Group
LP, the manager of the Fund, to manage and operate the properties;
the global and North American economic environment; foreign
currency exchange rates; and governmental regulations or tax
laws.
Although the Fund believes the expectations reflected in such
forward-looking information are reasonable and represent the Fund's
projections, expectations and beliefs at this time, such
information involves known and unknown risks and uncertainties
which may cause the Fund's actual performance and results in future
periods to differ materially from any estimates or projections of
future performance or results expressed or implied by such
forward-looking information.
Important factors that could cause actual results to differ
materially from the Fund's expectations include, among other
things, the availability of suitable properties for purchase by the
Fund, the availability of mortgage financing for such properties,
and general economic and market factors, including interest rates,
business competition and changes in government regulations or in
tax laws. The reader is cautioned to consider these and other
factors, uncertainties and potential events carefully and not to
put undue reliance on forward-looking information as there can be
no assurance that actual results will be consistent with such
forward-looking information.
The forward-looking information included 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 applicable Canadian law, the Fund undertakes no
obligation to update or revise publicly any forward-looking
information, 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.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
SOURCE Starlight U.S. Multi-Family (No. 5) Core Fund