/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, May 7, 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 March 31,
2019 (the "First 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.
Value-Add Program Highlights
- The Fund continued to implement its value-add capital
improvement program. Since inception of the Fund, 231 suites have
been upgraded and re-leased achieving average rent increases of
$173 per month per suite and an
estimated average return on investment of 25.5%. The rental
premiums continued to increase during the First Quarter, which is
typically a lower demand and slower seasonal leasing period, as the
Fund upgraded and re-leased 28 suites achieving average rent
increases of $206 per month per suite
and an estimated average return on investment of 27.2%. The Fund's
value-add initiatives have resulted in significant improvements to
common areas, amenities and building exteriors.
First Quarter Highlights
- Total portfolio revenue from property operations for the First
Quarter was $4,537, a 21.1% increase
over the same period in the prior year primarily as a result of the
acquisition of 50% of Coventry Pointe on January 9, 2018 and an additional 41.5%
approximate interest acquired on June 12,
2018, as well as same property revenue growth of 10.6%. Same
property revenue growth was driven primarily by a 460 basis point
increase in same property occupancy to 92.2%, strong ancillary
income growth and AMR growth of 4.8%, reflecting the impact of the
Fund's value-add capital improvements program.
- Total portfolio net operating income ("NOI") for the First
Quarter was $2,645, a 26.6% increase
over the same period in the prior year, relating to the acquisition
of the Coventry Pointe interests throughout 2018 and same property
NOI growth of 19.2%, primarily related to strong revenue growth
which was partly offset by increases in property operating costs
and property taxes. Excluding certain adjustments for recovery of
expenses incurred in 2018 and the certain adjustments to property
taxes, same property NOI growth was 15.1%.
- The Fund recognized a fair value gain on investment properties
during First Quarter of $892 which
was primarily as a result of increases in the NOI at the
Properties.
- Adjusted Funds from Operations "(AFFO") for the First Quarter
was $746 (three months ended
March 31, 2018 - $792) resulting in an AFFO payout ratio of 130.2%
(three months ended March 31, 2018 –
127.0%).
- The Fund utilizes 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
- Portfolio AMR as at March 31, 2019 was $1,243, representing an annualized increase of
5.9% from $1,225 at December 31,
2018. The strong rental growth continues to reflect increasing
average rents from suites which were upgraded and re-leased as part
of the value-add capital improvement program (see "Value-Add
Initiatives").
Subsequent Events
- On April 12, 2019, the Fund
refinanced the mortgage at Landmark at Coventry Pointe ("Coventry
Pointe") for net proceeds of approximately $2,600. After completion of the refinancing, the
mortgage outstanding amounted to $28,540 with an additional $3,800 capital facility which can be drawn to
fund future value-add initiatives at Coventry Pointe (the
"Refinancing"). The mortgage bears interest at U.S. 30-day London
Interbank Offering Rate ("LIBOR") + 2.00% and requires interest
only payments until maturity in January
2021. The proceeds from the Refinancing were partially used
to fund the acquisition of the remaining 8.50705% interest in
Coventry Pointe described below.
- On April 12, 2019, the Fund
acquired the remaining 8.50705% interest in Coventry Pointe from an
affiliate of the Manager for $1,310,
which includes the Fund assuming the affiliates pro-rata share of
liabilities of Coventry Pointe outstanding at the time of
acquisition. Upon closing of the acquisition, the Fund owned 100%
of Coventry Pointe. The Fund also purchased an interest rate cap
for $5 as required by the lender to
protect against increases in interest costs.
First Quarter Value-Add Initiatives
The Fund continued a second generation upgrade program at
Spectra South which added quartz countertops and tile backsplashes
to the kitchens of previously renovated suites. The new upgrade
program will also target unrenovated suites, with a scope that
combines the first generation and second generation upgrade
programs. The second generation program is expected provide
additional rent premiums to the first generation upgrades and
reposition the suites at the top of the market.
The Fund continued its suite upgrade program at the Landing at
Round Rock which includes plank flooring, stainless steel
appliances, upgraded lighting, refinished kitchen cabinets,
upgraded kitchen sinks and faucets, and the addition of quartz
countertops in kitchens and bathrooms; the property is achieving
substantial rental premiums on upgraded suites. In 2018, 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, and installing of new pool furniture
and an outdoor putting green. The Fund has now completed all
immediately planned major common area upgrades at the property but
will continue to focus on the suite upgrade program.
The Fund completed the main clubhouse renovation, including the
leasing office and the conversion of the common area laundry room
to a package locker room 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 plans to complete the following throughout
2019: (i) enhancements to landscaping, (ii) parking lot repairs,
(iii) new signage and rebranding, and (iii) its 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
|
IFRS - As at
March
31,
2019
|
Adjusted - As
at
March 31, 2019
(1)
|
IFRS - As
at
December 31,
2018
|
Adjusted - As
at
December 31, 2018
(1)
|
|
|
|
|
|
|
|
|
|
Operational
Information
|
|
|
|
|
|
|
|
|
Number of
properties
|
|
3
|
|
3
|
|
3
|
|
3
|
Total
suites
|
|
1,193
|
|
1,172
|
|
1,193
|
|
1,172
|
Economic occupancy
(2)
|
|
92.5%
|
|
92.5%
|
|
92.9%
|
|
92.9%
|
Same property AMR (in
actual dollars)
|
$
|
1,275
|
$
|
1,275
|
$
|
1,255
|
$
|
1,255
|
Same property AMR per
square foot (in actual dollars)
|
$
|
1.09
|
$
|
1.09
|
$
|
1.08
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
Summary of
Financial Information
|
|
|
|
|
|
|
|
|
Gross book
value
|
|
$229,483
|
|
$225,808
|
|
$226,200
|
|
$222,575
|
Indebtedness
|
|
$141,770
|
|
$139,554
|
|
$140,689
|
|
$138,506
|
Indebtedness to gross
book value
|
|
61.8%
|
|
61.8%
|
|
62.2%
|
|
62.2%
|
Weighted average
mortgage interest rate
|
|
4.49%
|
|
4.49%
|
|
4.52%
|
|
4.52%
|
Weighted average
mortgage term to maturity
|
|
1.42 years
|
|
1.42 years
|
|
1.67 years
|
|
1.67 years
|
|
|
IFRS -
First
Quarter
(3)
|
|
Adjusted
-First
Quarter
(4)
|
|
IFRS -
Three
months
ended
March 2018
(3)
|
|
Adjusted -
Three
months ended
March
31, 2018
(4)
|
|
|
|
|
|
|
|
|
|
Revenue from property
operations
|
|
$4,616
|
|
$4,537
|
|
$3,745
|
|
$4,155
|
Property operating
costs
|
|
($1,148)
|
|
($1,121)
|
|
($955)
|
|
($1,077)
|
Property taxes
(5)
|
|
($771)
|
|
($771)
|
|
($700)
|
|
($700)
|
Income from rental
operations / NOI
|
|
$2,697
|
|
$2,645
|
|
$2,090
|
|
$2,378
|
Net (loss) income and
comprehensive (loss) income
|
|
($2,588)
|
|
($2,588)
|
|
$5,526
|
|
$5,526
|
FFO
|
|
|
|
$734
|
|
|
|
$693
|
FFO per unit - basic
and diluted
|
|
|
|
$0.09
|
|
|
|
$0.08
|
AFFO
|
|
|
|
$746
|
|
|
|
$792
|
AFFO per unit - basic
and diluted
|
|
|
|
$0.09
|
|
|
|
$0.10
|
Interest coverage
ratio
|
|
|
|
1.46x
|
|
|
|
1.73x
|
Indebtedness coverage
ratio
|
|
|
|
1.46x
|
|
|
|
1.73x
|
FFO payout
ratio
|
|
|
|
132.4%
|
|
|
|
145.2%
|
AFFO payout
ratio
|
|
|
|
130.2%
|
|
|
|
127.0%
|
Weighted average
units Outstanding (000s) - basic and diluted
|
|
|
|
8,182
|
|
|
|
8,181
|
(1)
|
Total suites, gross
book value and indebtedness include the proportionate amounts of
the Fund's approximate 91.5% interest in Coventry
Pointe.
|
(2)
|
Economic occupancy
for the three months ended March 31, 2019 and three months ended
December 31, 2018.
|
(3)
|
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"). Net income
excludes any amounts
attributable to the non-controlling interest during each
period.
|
(4)
|
Revenue from property
operations, property operating costs, property taxes and NOI
include the proportionate amounts for the Fund's approximate 91.5%
interest
in Coventry Pointe for the three months ended March 31, 2019 and
50% interest in Coventry Pointe for the three months ended March
31, 2018.
|
(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.
|
Cash Provided by Operating Activities to AFFO
AFFO for the First Quarter was $746 (three months ended March 31, 2018 - $792). The AFFO payout ratio was 130.2% for the
First Quarter (three months ended March 31,
2018 – 127.0%). The decrease in AFFO and increase in the
AFFO payout ratio was mainly due to increases in finance costs
following increases in LIBOR and higher mortgage balances
outstanding during the First Quarter partially offset by increases
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 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 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 First Quarter along with the
comparative 2018 period were as follows:
|
First
Quarter
|
Three months
ended
March 31,
2018
|
Cash provided by
operating activities
|
$
|
2,437
|
$
|
3,067
|
Less: interest
paid
|
|
(1,591)
|
|
(939)
|
Cash provided by
operating activities - including interest paid
|
|
846
|
|
2,128
|
Add /
(Deduct):
|
|
|
|
|
Change in non-cash
operating working capital
|
|
(142)
|
|
(1,144)
|
Change in restricted
cash
|
|
(1,302)
|
|
(1,688)
|
Fair value adjustment
of investment properties relating to IFRIC 21
|
|
1,434
|
|
1,292
|
Fair value adjustment
relating to IFRIC 21 on investment in joint ventures
|
|
-
|
|
155
|
Amortization of
financing costs related to joint venture
|
|
-
|
|
10
|
Net income
attributable to non-controlling interests
|
|
(36)
|
|
-
|
Vacancy costs
associated with the suite upgrade program
|
|
21
|
|
98
|
Sustaining capital
expenditures and suite renovation reserves
|
|
(75)
|
|
(59)
|
AFFO
|
$
|
746
|
$
|
792
|
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 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 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 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