/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, Nov. 7, 2018 /CNW/ - Sarlight U.S.
Multi-Family (No. 1) Value-Add Fund (TSXV: SUVA.A) (TSXV: SUVA.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
- The Fund continued to implement its value-add capital
improvement program. Since inception of the Fund, 172 suites have
been upgraded and re-leased achieving average rent increases of
$159 per month per suite and an
estimated average return on investment of 24.3%. The rental
premiums and returns increased during the Third Quarter as the Fund
completed 42 suites which were upgraded and re-leased achieving
average rent increases of $170 per
month per suite and an estimated average return on investment of
25.7%. The Fund's value-add initiatives continue to result in
significant improvements to common areas, amenities and building
exteriors.
- Revenue from property operations, including the Fund's interest
in Coventry Pointe, was $4,446 for
the Third Quarter, representing an increase of $941 or 26.8% over the same period in the prior
year, primarily due to a 3.1% increase in revenue on a same
property basis, as well as additional revenue from the acquisition
of an approximate 91.5% interest in Coventry Pointe in 2018.
- AMR grew from $1,206 as at
June 30, 2018 to $1,218 as at September 30,
2018 representing an annualized increase of 4.0% reflecting
the impact of the Fund's value-add capital improvements program. On
a same-property basis, AMR grew 2.5% from September 30, 2017 to September 30, 2018.
- Economic occupancy for the three months ended September 30, 2018 was 92.5% (2017 – 92.8%).
Economic occupancy increased by 280 basis points from the three
months ended June 30, 2018.
- Net operating income ("NOI") was $2,510 for the Third Quarter in comparison to
$1,996 for the same period in the
prior year. The increase of $514 was
primarily due to the acquisition of Coventry Pointe in 2018 as well
as a 2.9% increase in same property NOI.
- The Fund recognized a fair value gain on investment properties
amounting to $10,999 in the Third
Quarter primarily related to increases in projected NOI across the
Fund's properties.
- Net income and comprehensive income to unitholders for the
Third Quarter was $5,782 in
comparison to income of $2,924 for
the same period in the prior year.
- As at September 30, 2018, the
weighted average interest rate on mortgages payable was 4.26% and
the weighted average term to maturity was 1.92
years.
- The Fund continues to maintain a 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
existing contract expires on November 30,
2018 and allows the Fund to exchange U.S. funds each month
within a range of C$1.2680 to
C$1.3400.
Financial Condition and Operating Results
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IFRS - As at
September
30, 2018
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Adjusted -
As at September
30, 2018(1)
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As at
December
31, 2017
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Operational
Information
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Number of
properties
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3
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3
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2
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Total
suites
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1 193
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1 172
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943
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Economic occupancy
(2)
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90,4%
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90,4%
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90,9%
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Same property AMR (in
actual dollars)
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$
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1 248
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$
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1,248
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$
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1 212
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Same property AMR per
square foot (in actual dollars)
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$
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1,15
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$
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1,15
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$
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1,13
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Summary of
Financial Information
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Gross book
value
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$225 110
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$221 777
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$161 142
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Indebtedness
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$139 653
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$137 508
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$104 950
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Indebtedness to gross
book value
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62,0%
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62,0%
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65,1%
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Weighted average
mortgage interest rate
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4,26%
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4,26%
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3,41%
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Weighted average
mortgage term to maturity
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1.92 years
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1.92 years
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2,50 years
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IFRS - Third
Quarter (3)
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Adjusted -
Third
Quarter (4)
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Three
months
ended September 30, 2017
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IFRS - Nine
months
ended September 30, 2018 (3)
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Nine
months
ended September 30, 2018 (4)
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Period from April
24,
2017 to September 30, 2017
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Revenue from property
operations
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$4 524
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$4 446
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$3 505
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$11 456
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$12 134
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$4 091
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Property operating
costs
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($1 346)
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($1 310)
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($895)
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($3 186)
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($3 389)
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($1 030)
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Property taxes
(5)
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($626)
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($626)
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($614)
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($2 005)
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($2 005)
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($716)
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Income from rental
operations / NOI
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$2 552
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$2
510
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$1
996
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$6 265
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$6
740
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$2
345
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Net income and
comprehensive income
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$5 782
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$5 782
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$2 924
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$10 279
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$10 279
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$2 987
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FFO
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$743
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$863
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$1 669
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$995
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FFO per unit - basic
and diluted
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$0,09
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$0,10
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$0,20
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$0,12
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AFFO
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$778
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$865
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$2 200
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$997
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AFFO per unit - basic
and diluted
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$0,10
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$0,10
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$0,27
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$0,12
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Interest coverage
ratio
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1,57 x
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2,06 x
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1,60 x
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1.52 x
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Indebtedness coverage
ratio
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1,57 x
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2,06 x
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1,60 x
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1.52 x
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FFO payout
ratio
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129,1%
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118,2%
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178,9%
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102,5%
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AFFO payout
ratio
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123,2%
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117,9%
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135,7%
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102,3%
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Weighted average
units Outstanding (000s) - basic and diluted
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8 182
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8 180
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8 181
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8 180
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(1) Total suites,
gross book value and indebtedness include the proportionate amounts
of the Fund's approximate 91.5% interest in Coventry
Pointe.
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(2) Economic
occupancy for the nine months ended September 30, 2018 and December
31, 2017. For the the months ended June 30, 2018, economic
occupancy increased by 280bps to 92.5%.
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(3) Revenue from
property operations, property operating costs and property taxes
are those reported in the condensed consolidated interim financial
statements, adjusted for the impact of International Financial
Reporting Interpretations Committee 21 – Levies ("IFRIC
21").
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(4) Revenue from
property operations, property operating costs, property taxes and
NOI include the proportionate amounts for the Fund's 50% interest
in Coventry Pointe prior to June 12, 2018 and approximate 91.5%
interest in Coventry Pointe from June 12 - September 30,
2018.
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(5) Property taxes
were adjusted to exclude the IFRIC 21 adjustment and treat property
taxes as an expense that is amortized during the fiscal year for
the purpose of calculating NOI.
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Financial Position
The Fund's indebtedness to gross book value as of September 30, 2018 was 62.0%, in comparison to
65.1% as at December 31, 2017. The
decrease was mainly attributable to the increase in fair value of
investment properties, offset partially by increases in mortgages
payable. The Fund's weighted average mortgage interest rate as of
September 30, 2018 was 4.26% and the
weighted average term to maturity was 1.92 years.
Cash Provided by Operating Activities to AFFO
Adjusted Funds from Operations ("AFFO") per unit and the AFFO
payout ratio for the Third Quarter was $0.10 and 123.2% (2017 - $0.10 and 117.9%), respectively. The increase in
the payout ratio during the Third Quarter was due to increases in
mortgage interest expense due to increases in U.S. 30-day London
Interbank Offering Rate ("LIBOR") being partly offset by the
increase in NOI.
AFFO per unit and the AFFO payout ratio for nine months ended
September 30, 2018 were $0.27 and 135.7% (April
24, 2017 to September 30, 2017
- $0.12 and 102.3%), respectively.
The increase in the payout ratio during the nine months ended
September 30, 2018 relative to the
comparative period was due to increases in mortgage interest
expense due to increases in LIBOR being partly offset by the
increase in NOI.
The Fund was formed as a closed-end, limited partnership with an
initial term of three years, a target yield of 6.0% and a targeted
minimum 14% pre-tax investor internal rate of return across all
classes of units. Although the payout ratio was in excess of 100%,
distributions have been maintained at 6.0% while interest costs
have increased as a result of increases in LIBOR since the Fund's
inception. The Fund continues to focus on its active management
strategy and value-add capital improvement program which the
manager of the Fund expects will yield improvements in NOI in
future periods. The Fund believes that maintaining the targeted
distributions is in the best interests of investors based on the
Fund's terminal nature as compared to a perpetual real-estate
investment trust and the Fund's investment objectives and
strategy.
A reconciliation of cash provided by operating activities
determined in accordance with International Financial Reporting
Standards ("IFRS") to AFFO for the Third Quarter and for the nine
months ended September 30, 2018 is
provided below:
DISTRIBUTIONS AND
ADJUSTED FUNDS FROM OPERATIONS ("AFFO)
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Third
Quarter
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Three months
ended September
30, 2017
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Nine months
ended
September 30, 2018
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Period from April
24,
2017 to September
30, 2017
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Cash provided by
operating activities
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$
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2 061
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$
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2 459
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$
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6 856
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$
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1 913
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Less: interest paid
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(1 457)
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(857)
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(3 513)
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(992)
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Cash provided by
operating activities - including interest paid
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$
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604
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$
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1 602
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$
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3 343
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$
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921
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Add /
(Deduct):
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Change in non-cash
operating working capital
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94
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(813)
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(1 354)
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(1 241)
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Change in restricted
cash
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504
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752
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(447)
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752
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Fair value adjustment
of investment properties relating to IFRIC 21
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25
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(623)
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828
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631
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Fair value adjustment
relating to IFRIC 21 on investment in joint ventures
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-
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-
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255
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-
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Amortization of
financing costs related to joint venture
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-
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-
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19
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-
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Net income
attributable to non-controlling interests
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(419)
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-
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(426)
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-
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Vacancy costs
associated with the suite upgrade program
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45
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-
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186
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-
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Unrealized foreign
exhange loss
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-
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6
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-
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3
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Sustaining capital
expenditures and suite renovation reserves
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(75)
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(59)
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(204)
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(69)
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AFFO
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$
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778
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$
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865
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$
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2
200
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$
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997
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Value-Add Initiatives
At Spectra South, the Fund is currently evaluating a Phase II
upgrade program that would add quartz countertops, tiled backsplash
and updated sinks to the kitchens of previously upgraded suites.
The second generation program would provide an additional rent
premium to the previous upgrades completed, resulting in accretive
returns and bringing suite quality to the top of the market. The
Fund also plans to complete the following in the near term:
refinish the pool and add additional pool furniture along with the
ongoing suite upgrade program that includes new plank flooring,
upgraded lighting, kitchen faucets, cabinets, bathroom lighting,
bathroom hardware and painting.
At The Landing at Round Rock, in the Third Quarter the Fund
completed the creation of a barbeque grilling centre as an amenity
to existing and potential tenants and is in the process of
finalizing exterior painting, completing a suite upgrade program
that includes new plank flooring, stainless steel appliances,
upgraded lighting, refinishing kitchen cabinets, kitchen plumbing,
installing quartz countertops in kitchens and bathrooms, upgraded
bathroom sinks and faucets, lighting and hardware. In addition, the
Fund plans to complete the following in the near term: enhancement
of the pool including pool deck redesign, landscape upgrades, new
pool furniture and games area, putting green and an outdoor spin
bicycle area.
At Coventry Pointe, in the Third Quarter the Fund completed
painting of the building exterior trim, bay window repairs and
commenced upgrades to the main clubhouse, including the leasing
office which the Fund expects to be completed by March 31, 2019. In addition, the Fund plans to
complete enhancements to landscaping, complete parking lot repairs
and continue to work through its ongoing suite upgrade program in
the near term, which includes new plank flooring, stainless steel
appliances, refinished kitchen cabinets, quartz countertops,
backsplashes and upgraded lighting in the kitchens, upgraded sinks
and faucets in the kitchens and bathrooms and new hardware.
The planned suite upgrades at all three properties are expected
to continue to generate significant increases in rental rates and
attractive returns on the capital invested.
About Starlight U.S. Multi-Family (No. 1) Value-Add
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 value-add, income producing rental properties in
the United States multi-family
real estate market. The Fund currently owns interests in three
properties, consisting of interests in 1,193 suites with an average
year of construction in 2003.
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 and NOI (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 Third Quarter 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 ability to
complete value-add initiatives; 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. 1) Value-Add Fund