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Starlight US Multi Family No 1 (SUVA-A-X) Quote - Press Release

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Starlight U.S. Multi-Family (No. 1) Value-Add Fund announces first quarter financial results including normalized same property NOI growth of 15.1%

CNW Group - CND - Tue May 7, 4:15PM CDT

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES./

Starlight U.S. Multi-Family (No. 1) Value-Add Fund (TSXV:SUVA-A.VN) (TSXV:SUVA-U.VN) (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           Adjusted -As at       IFRS -As at              Adjusted -As at

                                                                               31, 2019        March 31, 2019 (1) December 31, 2018        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

            Adjusted -First

         IFRS - Three

          Adjusted - Three



             Quarter (3)

              Quarter (4)

         months ended

          months ended March



         March 2018 (3)

            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:

Three months ended

                                                                                     First Quarter          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

View original content: http://www.newswire.ca/en/releases/archive/May2019/07/c5136.html

SOURCE: Starlight U.S. Multi-Family (No. 1) Value-Add Fund

To learn more about Starlight U.S. Multi-Family (No. 1) Value-Add Fund, visit
www.starlightus.com or contact: Evan Kirsh, President, Starlight U.S. Multi-Family
(No. 1) Value-Add Fund, +1-647-725-0417, ekirsh@starlightus.com; Martin Liddell,
Chief Financial Officer, Starlight U.S. Multi-Family (No. 1) Value-Add Fund,
+1-647-729-2588, mliddell@starlightinvest.com

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