/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, March 6, 2019 /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 months ended December 31,
2018 (the "Fourth Quarter") and for the year ended
December 31, 2018 ("2018").
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.
Fourth Quarter Highlights
- Total portfolio revenue from property operations for the Fourth
Quarter was $27,987, a 9.8% increase
over the same period in the prior year due to net acquisition
activity and same property revenue growth of 3.9% driven primarily
by a same property 140 basis point increase in economic occupancy
(same property occupancy was 93.2% for the Fourth Quarter) as well
as strong AMR and ancillary income growth.
- The Fund continued to realize increases in economic occupancy
as a result of a continued focus on increasing renewals on existing
leases, attracting new tenants to its properties and enhancing its
lease expiration profile. For the Fourth Quarter, the Funds
economic occupancy improved by 120 basis points to 92.8% (93.2% on
same property basis) compared to the same period in 2017.
- Total portfolio net operating income ("NOI") for the Fourth
Quarter was $16,162, a 7.5% increase
over the same period in the prior year, primarily due to net
acquisition activity and a 2.1% growth in same property NOI,
reflecting improvements in occupancy and strong revenue growth
offset by increases in property taxes and property operating
costs.
- Adjusted Funds from Operations ("AFFO") for the Fourth Quarter
was $4,425 (three months ended
December 31, 2017 - $6,632) resulting in an AFFO payout ratio of
139.9% (three months ended December 31,
2017 – 92.7%). The decrease in AFFO and the increase in the
payout ratio was primarily related to higher interest on mortgages
payable due to increases in the U.S. 30-day London Interbank
Offered Rate ("LIBOR") being partly offset by NOI growth. Excluding
adjustments relating to prior year property taxes and normalizing
finance costs assuming the refinancing of the Fund's indebtedness
occurred on October 1, 2018, the AFFO
payout ratio for the Fourth Quarter would have been 126.8%.
- On October 31, 2018, the Fund
refinanced all outstanding debt to strategically reposition the
portfolio's financing structure in order to fix the interest rate
on the majority of the Fund's indebtedness, significantly reducing
the weighted average interest rate on the Fund's mortgages payable
and extending the weighted average term to maturity on the Fund's
mortgages payable. The refinancing of the Fund's debt consisted
of:
-
- Entering into an agreement for a new portfolio mortgage secured
by all 23 properties of the Fund for total proceeds of
approximately $800,450 being
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% (based on LIBOR at October 31, 2018). 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.
- Amending the Funds credit facility which allows the Fund to
borrow up to $130,000
- Repaying a previously outstanding balances of mortgages payable
totaling $880,115 and the amounts
outstanding under the Funds credit facility which resulted in net
proceeds after transaction costs of $4,973.
- The Fund entered into a new variable rate collar contract to
provide protection from the impact of any potential weakening of
the U.S. dollar on the Fund's Canadian dollar distributions. The
six-month contract began in November
2018 and allows the Fund to exchange U.S. funds each month
within a range of C$1.3000 to
C$1.3535.
2018 Highlights
- The Fund completed its program to strategically recycle capital
into newer properties further enhancing the vintage and
geographical diversification of its portfolio while disposing of
smaller assets including:
-
- Two properties in Texas with
an average vintage of 2011 with the proceeds reinvested on a
partially tax-deferred basis into Alexander Village, a 320-suite property in
Charlotte, North Carolina (2015
vintage); an
- Reused the proceeds from the refinancing of five properties
during the first quarter of 2018 to acquire Altis at Sand Lake, a 315-suite property in
Orlando, Florida (2016
vintage).
- Total portfolio revenue from property operations in 2018 was
$110,354, representing a 10.5%
increase over the same period in the prior year (year ended
December 31, 2017 - $99,872), reflecting growth from net acquisition
activity, AMR growth of 3.0%, a 10 basis point increase in economic
occupancy (92.4% for 2018), and strong ancillary income growth.
- Total portfolio NOI for 2018 was $63,080, a 10.3% increase over the same period in
the prior year, primarily due to new properties acquired as part of
the Fund's capital recycling program and same property NOI growth
of 0.6% excluding adjustments relating to prior year property
taxes.
- The Fund recognized a $42,653
fair value increase on its properties for 2018, driven by
capitalization rate compression and NOI increases across the
portfolio.
- Net (loss) income and comprehensive (loss) income for 2018 was
($9,944), in comparison to income of
$93,860 for the same period in the
prior year. Net loss and comprehensive loss for 2018 was primarily
driven by a $18,561 deferred tax
expense and $19,983 of loss on early
extinguishment of debt resulting from the refinancing of the entire
portfolio on October 31, 2018.
- AFFO for 2018 was $19,093 (year
ended December 31, 2017 -
$26,816) representing an AFFO payout
ratio of 130.7% (year ended December 31,
2017 - 91.6%). 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. Excluding adjustments relating to prior year property taxes
and normalizing finance costs assuming the refinancing of the
Fund's indebtedness occurred on October 1,
2018, the AFFO payout ratio would have been 126.7% for
2018.
- Portfolio AMR as at December 31, 2018 was $1,232, representing an increase of 3.0% from
$1,196 at December 31, 2017. AMR
growth was particularly strong in Orlando/Tampa
(6.2%), Las Vegas (3.7%),
Phoenix (3.7%) and Houston (3.1%). Same property AMR as at
December 31, 2018 was $1,220,
representing a 2.0% increase from $1,196 at December 31, 2017. Same property
AMR growth was particularly strong in Orlando/Tampa
(3.7%), Las Vegas (3.7%),
Phoenix (3.7%) and Dallas (2.7%).
Financial Condition and Operating Results
|
|
|
|
|
|
|
|
As at December
31,
2018
|
As at December
31,
2017
|
|
|
|
|
|
|
|
|
Operational
Information
|
|
|
|
|
Number of
properties
|
|
|
23
|
23
|
Total
suites
|
|
|
7,289
|
7,127
|
Economic occupancy
(1)
|
|
|
92.4%
|
92.3%
|
AMR (in actual
dollars)
|
|
|
$
|
1,232
|
$
|
1,196
|
AMR per square foot
(in actual dollars)
|
|
|
$
|
1.28
|
$
|
1.25
|
|
|
|
|
|
Summary of
Financial Information
|
|
|
|
|
Gross book value
(2)
|
|
|
$1,389,255
|
$1,267,840
|
Indebtedness
(2)
|
|
|
$920,265
|
$809,015
|
Indebtedness to gross
book value
|
|
|
66.24%
|
63.81%
|
Weighted average
mortgage interest rate
|
|
|
3.88%
|
3.60%
|
Weighted average
mortgage term to maturity
|
|
|
6.00 years
|
4.16 years
|
|
|
|
|
|
|
Fourth
Quarter
|
Three months
ended
December 31, 2017
|
2018
|
Year ended
December 31, 2017
|
|
|
|
|
|
|
Summary of
Financial Information
|
|
|
|
|
Revenue from property
operations
|
$27,987
|
$25,486
|
$110,354
|
$99,872
|
Property operating
costs
|
($7,331)
|
($6,997)
|
($29,219)
|
($26,760)
|
Property taxes
(3)
|
($4,494)
|
($3,459)
|
($18,055)
|
($15,899)
|
NOI
|
$16,162
|
$15,030
|
$63,080
|
$57,213
|
Net (loss) income and
comprehensive (loss) income
|
($18,790)
|
$45,307
|
($9,944)
|
$93,860
|
FFO
|
($12,821)
|
$6,602
|
($3,393)
|
$23,250
|
FFO per unit - basic
and diluted
|
($0.26)
|
$0.13
|
($0.07)
|
$0.34
|
AFFO
|
$4,425
|
$6,632
|
$19,093
|
$26,816
|
AFFO per unit - basic
and diluted
|
$0.09
|
$0.13
|
$0.39
|
$0.55
|
Interest Coverage
Ratio
|
1.58 x
|
2.06 x
|
1.54 x
|
2.19 x
|
Indebtness Coverage
Ratio
|
1.58 x
|
1.89 x
|
1.52 x
|
2.00 x
|
FFO payout
ratio
|
n/a
|
93.2%
|
n/a
|
105.6%
|
AFFO payout
ratio
|
139.9%
|
92.7%
|
130.7%
|
91.6%
|
Weighted average
units Outstanding (000s)
|
|
|
|
|
- basic and
diluted
|
48,968
|
49,024
|
48,994
|
49,101
|
Notes:
|
|
|
|
|
(1)
|
Economic occupancy
for the year-ended December 31, 2018 and 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.
|
Cash Provided by Operating Activities to AFFO
AFFO for the Fourth Quarter was $4,425 (2017 - $6,632) and for 2018 was $19,093 (2017 - $26,816). AFFO payout ratio was 139.9% for the
Fourth Quarter (three months ended December
31, 2017 – 92.7%) and 130.7% for 2018 (year ended
December 31, 2017 – 91.6%). 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.
Excluding adjustments relating to prior year property taxes and
normalizing finance costs assuming the refinancing of the Fund's
indebtedness occurred on October 1,
2018, the AFFO payout ratio would have been 126.8% and
126.7% for the Fourth Quarter and 2018, respectively.
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 Fourth Quarter and 2018 along
with the comparative 2017 periods was as follows:
|
|
|
|
|
|
Fourth
Quarter
|
Three months
ended
December 31, 2017
|
2018
|
Year ended
December 31, 2017
|
Cash provided by
operating activities
|
$
|
20,280
|
$
|
11,222
|
$
|
57,546
|
$
|
49,880
|
Less: interest
paid
|
(9,713)
|
(6,721)
|
(36,110)
|
(23,646)
|
Cash provided by
operating activities - including interest paid
|
10,567
|
4,501
|
21,436
|
26,234
|
Add /
(Deduct):
|
|
|
|
|
Change in non-cash
operating working capital
|
(7,693)
|
925
|
(3,871)
|
(1,719)
|
Change in restricted
cash
|
(1,088)
|
158
|
(1,336)
|
4,367
|
One-time Plan of
Arrangement costs
|
113
|
-
|
1,050
|
152
|
Fair value adjustment
of investment properties (including IFRIC 21)
|
3,560
|
1,354
|
3,094
|
(634)
|
Realized foreign
exchange (gain) loss
|
(638)
|
114
|
(430)
|
(18)
|
Current taxes - U.S.
withholding taxes and tax on dispositions
|
-
|
12
|
734
|
48
|
Service fees related
to class A and class U units
|
151
|
154
|
603
|
628
|
Sustaining capital
expenditures and suite renovation reserve
|
(547)
|
(586)
|
(2,187)
|
(2,242)
|
AFFO
|
$
|
4,425
|
$
|
6,632
|
$
|
19,093
|
$
|
26,816
|
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 Fourth
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
March 2019 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 which may be 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 Management Discussion & Analysis for the Fourth
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