Starlight U.S. Multi-Family (No. 1) Value-Add Fund Announces Fourth Quarter and 2018 Financial Results Including Fourth Quarter Same Property NOI Growth of 7.6%

/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

					IFRS - As at December 31, 2018		Adjusted - As at December 31, 2018^(1)		As at December 31, 2017
Operational Information
Number of properties					3		3		2
Total suites					1,193		1,172		943
Economic occupancy ^(2)					91.0%		91.0%		90.9%
Same property AMR (in actual dollars)				$	1,255	$	1,255	$	1,212
Same property AMR per square foot (in actual dollars)				$	1.08	$	1.08	$	1.13
Summary of Financial Information
Gross book value					$226,200		$222,575		$161,142
Indebtedness					$140,689		$138,506		$104,950
Indebtedness to gross book value					62.2%		62.2%		65.1%
Weighted average mortgage interest rate					4.52%		4.52%		3.41%
Weighted average mortgage term to maturity					1.67 years		1.67 years		2.50 years
	IFRS - Fourth Quarter ^(3)	Adjusted - Fourth Quarter ^(4)	Three months ended December 31, 2017		IFRS - 2018 ^(3)		Adjusted - 2018 ^(4)		Period from April 24, 2017 to December 31, 2017
Revenue from property operations	$4,571	$4,494	$3,380		$16,027		$16,628		$7,471
Property operating costs	($1,248)	($1,216)	($875)		($4,434)		($4,605)		($1,905)
Property taxes ^(5)	($674)	($674)	($554)		($2,679)		($2,679)		($1,270)
Income from rental operations / NOI	$2,649	$2,604	$1,951		$8,914		$9,344		$4,296
Net (loss) income and comprehensive (loss) income	($713)	($713)	$527		$9,565		$9,565		$3,514
FFO		$811	$778				$2,479		$1,773
FFO per unit - basic and diluted		$0.10	$0.10				$0.30		$0.22
AFFO		$819	$780				$3,018		$1,777
AFFO per unit - basic and diluted		$0.10	$0.10				$0.37		$0.22
Interest coverage ratio		1.58 x	2.01 x				1.60 x		2.04 x
Indebtedness coverage ratio		1.58 x	2.01 x				1.60 x		2.04 x
FFO payout ratio		120.6%	129.0%				159.9%		114.2%
AFFO payout ratio		119.4%	128.7%				131.3%		113.9%
Weighted average units Outstanding (000s) - basic and diluted		8,182	8,181				8,182		8,180

(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 nine months ended December 31, 2018 and December 31, 2017. For the three months ended December 31, 2018, economic occupancy increased to 92.9%.
(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").
(4)	Revenue from property operations, property operating costs, property taxes and NOI include the proportionate amounts for the Fund's 50% interest in Coventry Pointe prior to June 12, 2018 and approximate 91.5% interest in Coventry Pointe from June 12 - December 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 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:

			Fourth Quarter		Three months ended December 31, 2017		2018		Period from April 24, 2017 to December 31, 2017
Cash provided by operating activities		$	2,447	$	—	$	9,301	$	1,913
Less: interest paid			(1,539)		(886)		(5,049)		(1,878)
Cash provided by (used in) operating activities - including interest paid		$	908	$	(886)	$	4,252	$	35
Add / (Deduct):
Change in non-cash operating working capital			46		3,510		(1,299)		2,269
Change in restricted cash			289		(1,156)		(158)		(404)
Fair value adjustment of investment properties relating to IFRIC 21			(519)		(629)		299		2
Fair value adjustment relating to IFRIC 21 on investment in joint ventures			—		—		255		—
Amortization of financing costs related to joint venture			—		—		19		—
Net loss (income) attributable to non-controlling interests			149		—		(278)		—
Vacancy costs associated with the suite upgrade program			21		—		207		—
Unrealized foreign exhange loss			—		—		—		3
Sustaining capital expenditures and suite renovation reserves			(75)		(59)		(279)		(128)
AFFO		$	819	$	780	$	3,018	$	1,777

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

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, [phone], [email protected]; Martin Liddell, Chief Financial Officer, Starlight U.S. Multi-Family (No. 1) Value-Add Fund, [phone], [email protected]