/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES/
TORONTO, May 16, 2018 /CNW/ - Starlight U.S. Multi-Family
(No. 1) Value-Add Fund (TSX.V: SUVA.A, SUVA.U) (the "Fund")
announced today its results of operations and financial condition
for the three months ended March 31,
2018 (the "First Quarter").
All amounts in this press release are in thousands of
United States ("U.S.") dollars
except for average market rent ("AMR") or unless otherwise
stated. All references to "C$" are to Canadian dollars. The
forecast figures below represent the financial forecast (the
"Forecast") as set out in the Fund's final long form prospectus
dated June 12, 2017 as part of the
initial public offering (the "Offering").
First Quarter Highlights
- On January 9, 2018, the Fund
acquired a 50% interest in Landmark at Coventry Pointe ("Coventry
Pointe"), a 250-suite value-add property located in Atlanta, Georgia for $17,563. The Fund's share of the acquisition
price was partly financed by the Fund's share of a first mortgage
of $12,070, with the balance provided
by cash proceeds from the Offering. As part of the Fund's business
plan, Coventry Pointe will be repositioned to a modern standard
with upgraded suite finishes and attractive common areas and
amenity spaces.
- The Fund continued to ramp up its value-add capital improvement
program during the First Quarter. The Fund upgraded and re-leased
an additional 57 suites achieving average rent increases of
$160 per month for each upgraded
suite and an estimated average return on investment of 22.9%.
Substantially all of the upgrades were made to one and two bedroom
suites.
- During the First Quarter, the Fund recognized a fair value
increase on its properties of $10,609
primarily driven by capitalization rate compression.
- Indebtedness to gross book value improved to 61.4% as at
March 31, 2018, in comparison to
65.1% as at December 31, 2017.
- Revenue from property operations, including the Fund's 50%
interest in Coventry Pointe, was $3,745 for the First Quarter. This was
$107 or 2.9% higher than Forecast
primarily due to the impact of the acquisition of Coventry Pointe,
partially offset by a reduction in economic occupancy at the
Landing at Round Rock (the "Landing").
- Net operating income ("NOI"), including the Fund's 50% interest
in Coventry Pointe, was $2,091 for
the First Quarter in comparison to Forecast of $2,097. NOI margin for the First Quarter,
including the Fund's 50% interest in Coventry Pointe was 55.8%
(Forecast – 57.6%)
- Net income and comprehensive income was $5,526 for the First Quarter (Forecast – net loss
and comprehensive loss of $369). The
increase during the First Quarter was primarily due to the fair
value increases on the Fund's properties.
- Economic occupancy for the First Quarter was 88.3%, in
comparison to Forecast of 93.8%. The Landing experienced a slower
leasing period for larger three and four-bedroom suites. Demand for
these suites is typically higher in the second and third
quarters.
- The Fund's adjusted funds from operations ("AFFO") for the
First Quarter was $792, in comparison
to Forecast of $923. The $131 or 14.2% shortfall to Forecast was primarily
related to increased interest expense as a result of the U.S.
30-day London Interbank Offered Rate ("LIBOR") being higher than
the rate used in the Forecast and lower economic occupancy at the
Landing. The Fund's AFFO payout ratio was 127.0% (Forecast –
91.5%).
- Interest coverage ratio and indebtedness coverage ratio was
1.63 times for the First Quarter.
- As at March 31, 2018, the
weighted average interest rate on mortgages payable was 3.70% and
the weighted average term to maturity was 2.25
years.
Financial Condition and Operating Results
|
|
|
|
As at March 31,
2018
|
As at December 31,
2017
|
|
|
|
Operational
Information
|
|
|
Number of
properties
|
3
|
2
|
Total
suites
|
1,193
|
943
|
Economic occupancy
(1)
|
88.3%
|
90.9%
|
AMR (in actual
dollars) (2)
|
$
|
1,199
|
$
|
1,212
|
AMR per square foot
(in actual dollars)(2)
|
$
|
1.08
|
$
|
1.13
|
|
|
|
Summary of
Financial Information
|
|
Gross book value
(3)
|
$191,950
|
$161,142
|
Indebtedness
(3)
|
$117,782
|
$104,950
|
Indebtedness to gross
book value (4)
|
61.4%
|
65.1%
|
Weighted average
mortgage interest rate
|
3.70%
|
3.41%
|
Weighted average
mortgage term to maturity
|
2.25 years
|
2.50 years
|
|
|
First Quarter
|
Summary of
Financial Information
|
|
|
Revenue from property
operations (5)
|
|
$3,745
|
Property operating
costs (5)
|
|
($954)
|
Property taxes
(5)(6)
|
|
($700)
|
NOI
(5)
|
|
$2,091
|
Net income and
comprehensive income
|
|
$5,526
|
Funds from operations
("FFO")
|
|
$693
|
FFO per unit - basic
and diluted
|
|
$0.08
|
AFFO
|
|
$792
|
AFFO per unit - basic
and diluted
|
|
$0.10
|
Interest coverage
ratio
|
|
1.63 x
|
Indebtedness coverage
ratio
|
|
1.63 x
|
FFO payout
ratio
|
|
145.2%
|
AFFO payout
ratio
|
|
127.0%
|
Weighted average
units Outstanding (000s) - basic and diluted
|
|
8,181
|
(1)
|
Economic occupancy
for the First Quarter and three months ended December 31,
2017.
|
(2)
|
The decrease in AMR
and AMR per square foot is primarily related to the weighted
average impact of the acqusition of Coventry Pointe which had an
AMR and AMR per square foot of $1,077 and $0.82,
respectively.
|
(3)
|
Gross book value and
Indebtedness include the proportionate amounts of the Fund's 50%
interest in Coventry Pointe.
|
(4)
|
Defined as
indebtedness divided by gross book value.
|
(5)
|
Revenue from property
operations, property operating costs, property taxes and NOI
include the proportionate amounts for the Fund's 50% interest in
Coventry Pointe.
|
(6)
|
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 purpose of calculating NOI.
|
As at March 31, 2018, the Landing
and Spectra on 7th South AMR was $1,354 and $996,
respectively, compared to Forecast of $1,392 and $1,025,
respectively. The shortfall to Forecast at the Landing was
primarily due to higher vacancy in larger suites which carry higher
average rents. The shortfall at Spectra South was primarily related
to higher vacancy in suites which carry higher average rents. This
vacancy in suites which carry higher average rents was primarily
related to the timing of lease expiries. Since March 31, 2018, the Fund has experienced enhanced
leasing activity with respect to these suites at Spectra South. For
the three months ended March 31,
2018, economic occupancy at the Landing was 85.3% (Forecast
– 94.0%), Spectra South economic occupancy was 92.7% (Forecast –
93.6%) and Coventry Pointe economic occupancy was 94.9%. Economic
occupancy at the Landing for the three months ended March 31, 2018 was lower than Forecast primarily
due to a slower leasing period for larger three and four-bedroom
suites. The Landing typically sees higher demand for its three and
four-bedroom suites in the second and third quarters. When this
property was acquired, the lease expiration profile was not
optimal, resulting in uneven lease expirations. The Fund is in the
process of optimizing lease expirations for this property in
conjunction with the release of upgraded suites.
AFFO per unit and AFFO payout ratio for the First Quarter was
$0.10 and 127.0%, respectively,
compared to Forecast of $0.12 and
91.5%, respectively. These variances from Forecast are primarily
related to the lower economic occupancy at the Landing and higher
interest on mortgages payable due to an increase in LIBOR. The Fund
expects to see an improvement in the economic occupancy at the
Landing and expects an increase in rents as a result of the suite
upgrade program resulting in an improved AFFO payout ratio in the
second and third quarters.
A reconciliation of cash provided by operating activities
determined in accordance with International Financial Reporting
Standards ("IFRS") to AFFO for the First Quarter is provided
below:
|
|
|
First Quarter
|
Cash provided by
operating activities
|
$
|
3,079
|
|
Less: interest
paid
|
(939)
|
Cash provided by
operating activities - including interest paid
|
$
|
2,140
|
Add /
(Deduct):
|
|
|
Change in non-cash
operating working capital
|
(1,155)
|
|
Change in restricted
cash
|
(1,689)
|
|
Fair value adjustment
of investment properties relating to IFRIC 21
|
1,292
|
|
Fair value adjustment
relating to IFRIC 21 on investment in joint ventures
|
155
|
|
Amortization of
financing costs related to joint venture
|
10
|
|
Vacancy costs
associated with the suite upgrade program
|
98
|
|
Sustaining capital
expenditures and suite renovation reserves
|
(59)
|
AFFO
|
$
|
792
|
May 2018 Distributions
The Fund also announced its May
2018 cash distribution amounts on its outstanding Class A
Units, Class C Units, Class D Units, Class E Units, Class F Units,
Class H Units and Class U Units (collectively, the "Units"),
payable on June 15, 2018 to holders
of Units of record at May 31, 2018.
The distribution amounts will be as follows:
- C$0.05000 per Class A Unit,
representing approximately C$0.60 per
Unit on an annualized basis;
- C$0.05000 per Class C Unit,
representing approximately C$0.60 per
Unit on an annualized basis;
- C$0.05000 per Class D Unit,
representing approximately C$0.60 per
Unit on an annualized basis;
- US$0.05000 per Class E Unit,
representing approximately US$0.60
per Unit on an annualized basis;
- C$0.05000 per Class F Unit,
representing approximately C$0.60 per
Unit on an annualized basis;
- C$0.01667 per Class H Unit,
representing approximately C$0.60 per
Unit on an annualized basis less a portion of the cost of the
derivative instrument purchased by the Fund to provide the holders
of Class H Units with some protection against any weakening of the
U.S. dollar as compared to the Canadian dollar on termination and
liquidation of the Fund (the "Class H Unit Liquidation Hedge");
and
- US$0.05000 per Class U Unit,
representing approximately US$0.60
per Unit on an annualized basis.
A wholly-owned subsidiary of Starlight Group Property Holdings
Inc., the manager of the Fund, may at its sole discretion,
discontinue the Class H Unit Liquidation Hedge in the event that
derivative instruments are not available on an economical basis or
the manager determines that the continuation of the Class H Unit
Liquidation is no longer in the best interests of holders of Class
H Units.
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 First
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
May 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, 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 MD&A for the First 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, the Fund's use of its normal course issuer bid,
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. 1) Value-Add Fund