/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. 1) Value-Add Fund (TSXV: SUVA.A) (TSXV: SUVA.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.
Value-Add Program Highlights
- The Fund continued to implement its value-add capital
improvement program. Since inception of the Fund, 203 suites have
been upgraded and re-leased achieving average rent increases of
$168 per month per suite representing
an estimated average return on investment of 24.8%. The rental
premiums and returns increased during the Fourth Quarter as the
Fund completed 31 suites which were upgraded and re-leased
achieving average rent increases of $183 per month per suite and an estimated average
return on investment of 27.7%. The Fund's value-add initiatives
continue to result in significant improvements to common areas,
amenities and building exteriors.
Fourth Quarter Highlights
- Total portfolio revenue from property operations for the Fourth
Quarter was $4,494, a 33% increase
over the same period in the prior year, primarily due to same
property revenue growth of 8.3% driven primarily by a 430 basis
point increase in occupancy (93.0% for the Fourth Quarter on a same
property basis), strong AMR and ancillary income growth, as well as
additional revenue from the acquisition of interests in Landmark at
Coventry Pointe ("Coventry Pointe") in 2018 totaling approximately
91.5%.
- Total portfolio net operating income ("NOI") for the Fourth
Quarter was $2,604, a 33.5% increase
over the same period in the prior year, relating to the acquisition
of the Coventry Pointe interests and same property NOI growth of
7.6% primarily from strong revenue growth offset by increases in
property operating costs and property taxes.
- Adjusted Funds from Operations "(AFFO") for the Fourth Quarter
was $819 (three months ended
December 31, 2017 - $780) resulting in an AFFO payout ratio of 119.4%
(three months ended December 31, 2017
– 128.7%).
- The Fund entered into 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
contract expires on December 10, 2019 and allows the Fund to
exchange U.S. funds each month within a range of C$1.3125 to C$1.3725
2018 Highlights
- On January 9, 2018 and
June 12, 2018, the Fund acquired a
50% and an approximate 41.5% interest, respectively, in Coventry
Pointe for $11,455 (net of debt
assumed) which was financed with proceeds from the refinancing of
The Landing at Round Rock ("The Landing").
- Revenue from property operations for the year ended
December 31, 2018 was $16,628 (April 24,
2017 to December 31, 2017 –
$7,471), representing an increase of
$9,157 or 122.6% primarily as a
result of net acquisition activity relating to the acquisition of
the Coventry Pointe interests as well as 2017 representing a
shorter operating period given the Fund's formation on April 24, 2017.
- NOI for the year ended December 31,
2018 was $9,344 (April 24, 2017 to December
31, 2017 – $4,296),
representing an increase of $5,048 or
117.5% primarily as a result of the acquisition of the Coventry
Pointe interests as well as 2017 representing a partial year given
the Fund's formation on April 24,
2017.
- The Fund recognized a fair value gain on investment properties
amounting to $21,761 for 2018, driven
by capitalization rate compression and NOI increases across the
Fund's properties.
- Net income and comprehensive income to unitholders in 2018 was
$9,565 in comparison to income of
$3,514 for the period from
April 24, 2017 to December 31, 2017, representing an increase of
$6,051 largely driven by the fair
value gain on investment properties and NOI growth being partly
offset by increases in finance costs and deferred income
taxes.
- AFFO for 2018 was $3,018
(April 24, 2017 to December 31, 2017 – $1,777) representing an AFFO payout ratio of
131.3% (April 24, 2017 to
December 31, 2017 – 113.9%).
The increase in AFFO was primarily related to the acquisition of
the interests in Coventry Pointe as well as 2017 representing a
partial year given the Fund's formation on April 24, 2017.
- Portfolio AMR as at December 31, 2018 was $1,225, representing an increase of 1.1% from
$1,212 at December 31, 2017. AMR
growth for the total portfolio reflects strong same property AMR
growth of 3.6% including the impact of the Fund's value-add capital
improvements program.
Value-Add Initiatives
In 2018 at Spectra South, the Fund completed exterior painting
as well as repairs and upgrades to the parking lot and entry way.
At the end of the Fourth Quarter, the Fund initiated a second
generation upgrade program which added quartz countertops and a
tile backsplash to the kitchens of previously renovated suites. The
new upgrade program will also target unrenovated suites, with a
renovation scope that combines the first generation and second
generation upgrade programs. The second generation program will
provide additional rent premiums to the first generation upgrades
and reposition the suites at the top of the market.
In 2018 at The Landing, the Fund completed upgrades to the main
clubhouse (including the relocation of the leasing office, adding a
Wi-Fi café and package locker system and repurposing the movie
theatre and games room) as well as adding an exterior barbeque
grilling centre, painting the exterior of Phase II of the property,
purchasing new pool furniture and installing an outdoor putting
green. The Fund is completing suite upgrades on an ongoing basis
which includes new plank flooring, stainless steel appliances,
upgraded lighting, refinishing kitchen cabinets, upgraded kitchen
sinks and faucets, installing quartz countertops in kitchens and
bathrooms, upgraded bathroom sinks, faucets, lighting and hardware.
As a result, the Fund is achieving substantial rental premiums.
In 2018 at Coventry Pointe, upgrades to the fitness centre,
enhancements to the pool area including new pool furniture and the
addition of a grilling station were completed in the second quarter
of 2018, while painting of building exterior trim and bay window
repairs were completed in the third quarter of 2018. The Fund also
commenced upgrades to the main clubhouse in the third quarter of
2018, including the leasing office and expects these renovations to
be completed in the first quarter of 2019. The Fund plans to
complete the following throughout 2019: (i) enhancements to
landscaping; (ii) parking lot repairs; and (iii) ongoing suite
upgrade program, which includes new plank flooring, stainless steel
appliances, refinished kitchen cabinets, quartz countertops,
backsplashes and upgraded lighting, sinks, faucets and hardware in
the kitchens and bathrooms.
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.
Financial Condition and Operating Results
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IFRS - As at
December
31, 2018
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Adjusted -
As at
December 31,
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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91.0%
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91.0%
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90.9%
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Same property AMR (in
actual dollars)
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$
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1,255
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$
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1,255
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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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1.08
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$
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1.08
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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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$226,200
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$222,575
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$161,142
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Indebtedness
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$140,689
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$138,506
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$104,950
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Indebtedness to gross
book value
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62.2%
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62.2%
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65.1%
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Weighted average
mortgage interest rate
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4.52%
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4.52%
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3.41%
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Weighted average
mortgage term to maturity
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1.67 years
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1.67 years
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2.50 years
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IFRS -
Fourth
Quarter (3)
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Adjusted -
Fourth
Quarter (4)
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Three months
ended
December 31,
2017
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IFRS - 2018
(3)
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Adjusted -
2018 (4)
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Period from
April 24, 2017
to December
31, 2017
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Revenue from property
operations
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$4,571
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$4,494
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$3,380
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$16,027
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$16,628
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$7,471
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Property operating
costs
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($1,248)
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($1,216)
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($875)
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($4,434)
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($4,605)
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($1,905)
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Property taxes
(5)
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($674)
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($674)
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($554)
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($2,679)
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($2,679)
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($1,270)
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Income from rental
operations / NOI
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$2,649
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$2,604
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$1,951
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$8,914
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$9,344
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$4,296
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Net (loss) income and
comprehensive (loss) income
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($713)
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($713)
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$527
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$9,565
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$9,565
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$3,514
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FFO
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$811
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$778
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$2,479
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$1,773
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FFO per unit - basic
and diluted
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$0.10
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$0.10
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$0.30
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$0.22
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AFFO
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$819
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$780
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$3,018
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$1,777
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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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$0.37
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$0.22
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Interest coverage
ratio
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1.58 x
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2.01 x
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1.60 x
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2.04 x
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Indebtedness coverage
ratio
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1.58 x
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2.01 x
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1.60 x
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2.04 x
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FFO payout
ratio
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120.6%
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129.0%
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159.9%
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114.2%
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AFFO payout
ratio
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119.4%
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128.7%
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131.3%
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113.9%
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Weighted average
units Outstanding (000s) - basic and diluted
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8,182
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8,181
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8,182
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8,180
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(1)
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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)
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Economic occupancy
for the nine months ended December 31, 2018 and December 31, 2017.
For the three months ended December 31, 2018, economic occupancy
increased to 92.9%.
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(3)
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Revenue from property
operations, property operating costs and property taxes are those
reported in the condensed consolidated interim financial
statements, adjusted to exclude the impact of International
Financial Reporting Interpretations Committee 21 – Levies ("IFRIC
21").
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(4)
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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 - December 31,
2018.
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(5)
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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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Cash Provided by Operating Activities to AFFO
AFFO for the Fourth Quarter was $819 (three months ended December 31, 2017 - $780) and for 2018 was $3,018 (April 24,
2017 to December 31, 2017 -
$1,777). The AFFO payout ratio was
119.4% for the Fourth Quarter (three months ended December 31, 2017 – 128.7%) and 131.3% for 2018
(April 24, 2017 to December 31, 2017 – 113.9%). The increase in AFFO
and the decrease in the payout ratio for the Fourth Quarter was
primarily related to the NOI growth being in excess of increases in
finance costs and Fund and trust expenses. The increase in AFFO for
2018 was primarily related to the shorter initial operating period
in 2017 as well as increases in Funds from Operations ("FFO")
excluding the increase in loss on early extinguishment of debt and
vacancy costs associated with the suite upgrade program which have
been excluded from AFFO. The AFFO payout ratio was primarily due to
increases in finance costs and fund and trust expenses being partly
offset by increases in NOI as a result of the acquisition of the
interests in Coventry Pointe.
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 in 2018 was in excess
of 100%, distributions have been maintained at 6.0% while interest
costs have increased as a result of increases in the U.S. 30-day
London Interbank Offered Rate ("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 Fourth Quarter and for 2018
along with the comparative 2017 periods was as follows:
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Fourth
Quarter
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Three months
ended December 31,
2017
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2018
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Period from April
24,
2017 to December
31, 2017
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Cash provided by
operating activities
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$
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2,447
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$
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—
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$
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9,301
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$
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1,913
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Less: interest
paid
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(1,539)
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(886)
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(5,049)
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(1,878)
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Cash provided by
(used in) operating activities - including interest
paid
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$
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908
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$
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(886)
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$
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4,252
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$
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35
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Add /
(Deduct):
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Change in non-cash
operating working capital
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46
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3,510
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(1,299)
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2,269
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Change in restricted
cash
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289
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(1,156)
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(158)
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(404)
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Fair value adjustment
of investment properties relating to IFRIC 21
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(519)
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(629)
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299
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2
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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 loss (income)
attributable to non-controlling interests
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149
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—
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(278)
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—
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Vacancy costs
associated with the suite upgrade program
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21
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—
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207
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—
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Unrealized foreign
exhange loss
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—
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—
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—
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3
|
Sustaining capital
expenditures and suite renovation reserves
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(75)
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(59)
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|
(279)
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|
(128)
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AFFO
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|
$
|
819
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$
|
780
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$
|
3,018
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$
|
1,777
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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 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 that may be 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 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