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Starlight US Multi-Family (No 5) Core Fund
Symbol C : STUS.A
Shares Issued 13,777,080
Close 2018-05-16 C$ 9.00
Recent Sedar Documents

Starlight U.S. (No. 5) loses $9.06-million (U.S.) in Q1

2018-05-16 19:06 ET - News Release

Mr. Evan Kirsh reports

STARLIGHT U.S. MULTI-FAMILY (NO. 5) CORE FUND ANNOUNCES 2018 FIRST QUARTER FINANCIAL RESULTS, COMPLETES STRATEGIC REBALANCING OF ITS PORTFOLIO AND MAY 2018 DISTRIBUTIONS

Starlight U.S. Multi-Family (No. 5) Core Fund has released its results of operations and financial condition for the three months ended March 31, 2018.

All amounts in this press release are in thousands of U.S. dollars except for average market rent (AMR) or unless otherwise stated.

First quarter highlights:

  • The fund completed its program to strategically recycle capital into new properties, further enhancing the vintage of its portfolio and its geographical diversification while disposing of smaller assets:
    • Disposed of two properties in Texas with an average vintage of 2011 and reinvested the proceeds on a tax-deferred basis into Alexander Village, a 320-suite property in Charlotte, N.C. (2015 vintage);
    • Proceeds from the refinancing of five properties were used to acquire Altis at Sand Lake, a 315-suite property in Orlando, Fla. (2016 vintage).
  • Revenue from property operations for the first quarter was $26,044, a 7.1-per-cent increase over the same period in the prior year ($24,311), reflecting growth from net acquisition activity and same-property revenue growth across the portfolio.
  • Net operating income (NOI) for the three months ended March 31, 2018, was $15,136, a 9.5-per-cent increase over the same period in the prior year ($13,825) and was primarily due to the impact of net acquisition activity and same-property NOI growth.
  • NOI margin for the first quarter was 57.1 per cent, a 20-basis-point improvement over the NOI margin for the same period in the prior year.
  • Net (loss) income and comprehensive (loss) income for the first quarter were ($9,061), in comparison with $4,334 for the same period in the prior year. Net income and comprehensive income for the three months ended March 31, 2017, were primarily driven by a $9,695 positive fair value adjustment on investment properties.
  • Adjusted funds from operations (AFFO) for the first quarter were $5,611 (three months ended March 31, 2017: $6,978). AFFO payout ratio was 111.2 per cent for the first quarter (three months ended March 31, 2017: 88.5 per cent). The decrease in AFFO and the increase in the payout ratio are primarily related to higher interest on mortgages payable due to an increase in the U.S. 30-day London interbank offered rate (LIBOR) and a larger mortgage payable balance resulting from net acquisition activity and refinancings.
  • On March 29, 2018, the fund entered into an interest rate collar agreement to provide protection on the rate of interest payable on its second pooled mortgage facility. This agreement provides for a LIBOR floor rate of 1.9 per cent and a LIBOR ceiling rate of 2.5 per cent and covers approximately $305,000 face value of mortgages payable across seven properties.

Subsequent events:

  • On April 24, 2018, the fund entered into an interest rate collar agreement to provide protection on the rate of interest payable on its first pooled mortgage facility. This agreement provides for a LIBOR floor rate of 1.9 per cent and a LIBOR ceiling rate of 2.5 per cent and covers approximately $280,000 in face value of mortgages payable across eight properties.
  • The fund hedged the variable interest rate risk on approximately $759,000 or 86 per cent of the face value of its mortgages payable as a result of the interest rate cap and collar agreements that it has entered into to date.

Evan Kirsh, president of Starlight U.S. Multi-Family, commented: "The fund completed the strategic rebalancing of its portfolio, resulting in enhanced geographical diversification and a further improvement in the overall vintage of its assets during the first quarter. The fund also hedged a substantial portion of its variable interest rate risk by entering into interest rate collar agreements, providing protection against future increases in LIBOR for a substantial portion of the fund's mortgage portfolio."

Property highlights for the first quarter, including a comparison with the same period in the prior year:

  • Portfolio AMR as at March 31, 2018, was $1,214, representing an increase of 3.8 per cent from $1,170 at March 31, 2017. AMR growth was particularly strong in Orlando/Tampa (7.1 per cent), Dallas (6.9 per cent) and Charlotte/Raleigh (3.8 per cent), reflecting the acquisition of properties with higher average rents. Economic occupancy for the three months ended March 31, 2018, decreased by 130 basis points to 90.7 per cent, compared with the same period in the prior year.
  • Same-property AMR as at March 31, 2018, was $1,196, representing a 1.5-per-cent increase from $1,179 at March 31, 2017. Same-property AMR growth was particularly strong in Orlando/Tampa (3.9 per cent) and Charlotte/Raleigh (3.2 per cent). Same-property economic occupancy for the three months ended March 31, 2018, was 91.2 per cent, representing an 80-basis-point decrease in comparison with the same period in the prior year.
  • Same-property NOI at $11,765 for the three months ended March 31, 2018, increased by $130 or 1.1 per cent in comparison with the same period in the prior year. The increase was primarily driven by AMR growth being partly offset by a decrease in economic occupancy.

                        FINANCIAL CONDITION AND OPERATING RESULTS
                                                                    As at                  As at
                                                           March 31, 2018          Dec. 31, 2017
Operational information
Number of properties                                                   23                     23
Total suites                                                        7,289                  7,127
Economic occupancy (1)                                               90.7%                  91.8%
AMR (in actual dollars)                                            $1,214                 $1,196
AMR per square foot (in actual dollars)                              1.26                   1.25

Summary of financial information
Gross book value (2)                                           $1,344,944             $1,267,840
Indebtedness                                                     $892,505               $808,988
Indebtedness to gross book value (3)                                 66.4%                  63.8%
Weighted-average mortgage interest rate                              3.76%                  3.60%
Weighted-average mortgage term to maturity                     4.37 years             4.16 years
                                                           --------------         --------------

                                                       Three months ended     Three months ended
                                                        March 31, 2018 (4)        March 31, 2017
Summary of financial information
Revenue from property operations                                  $26,533                $24,311
Property operating costs                                          ($6,923)               ($6,232)
Property taxes (5)                                                ($4,474)               ($4,254)
NOI                                                               $15,136                $13,825
Net (loss) income and comprehensive (loss) income                 ($9,061)                $4,334
                                                           ==============         ==============
Funds from operations (FFO)                                        $1,564                 $6,632
FFO per unit -- basic and diluted                                   $0.03                  $0.13
AFFO                                                               $5,611                 $6,978
AFFO per unit -- basic and diluted                                  $0.11                  $0.14
Interest coverage ratio                                             1.55x                  2.45x
Indebtness coverage ratio                                           1.50x                  2.27x
FFO payout ratio                                                    398.8%                  93.2%
AFFO payout ratio                                                   111.2%                  88.5%
                                                           --------------         --------------
Notes:    
(1) Economic occupancy for the first quarter and three months ended Dec. 31, 2017. 
(2) The Dec. 31, 2017, gross book value includes Villages at Sunset Ridge, which was 
classified as held for sale.   
(3) Defined as indebtedness divided by gross book value.   
(4) Revenue from property operations, property operating costs and property taxes 
include amounts relating to Villages at Sunset Ridge, which was classified as held 
for sale at Dec. 31, 2017, and subsequently sold during the first quarter.
(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 
purposes of calculating NOI (net operating income).                                                         

Financial position

As at March 31, 2018, the fund's indebtedness to gross book value was 66.4 per cent, representing an increase from 63.8 per cent at Dec. 31, 2017. The increase in indebtedness to gross book value was primarily related to the refinancing of five of the fund's properties during the first quarter. The fund's interest coverage ratio for the first quarter was 1.55 times in comparison with 2.45 times for the three months ended March 31, 2017. The decrease in the interest coverage ratio, in comparison with the same period in the prior year, was primarily related to the increase in interest expense as a result of increases in LIBOR and a higher mortgages payable balance relating to net acquisitions and refinancing activity, partially offset by NOI growth. As at March 31, 2018, the fund's weighted-average interest rate on mortgages payable and weighted-average term to maturity were 3.76 per cent and 4.37 years, respectively.

May, 2018, distributions

The fund also announced its May, 2018, cash distribution amounts on its outstanding Class A units, Class C units, Class D units, Class E units, Class F units, Class H units and Class U units, payable on June 15, 2018, to holders of units of record at May 31, 2018. The distribution amounts will be as follows:

  • 5.417 Canadian cents per Class A unit, representing approximately 65 Canadian cents per unit on an annualized basis;
  • 5.417 Canadian cents per Class C unit, representing approximately 65 Canadian cents per unit on an annualized basis;
  • 5.417 Canadian cents per Class D unit, representing approximately 65 Canadian cents per unit on an annualized basis;
  • 5.417 U.S. cents per Class E unit, representing approximately 65 U.S. cents per unit on an annualized basis;
  • 5.417 Canadian cents per Class F unit, representing approximately 65 Canadian cents per unit on an annualized basis;
  • 2.917 Canadian cents per Class H unit, representing approximately 65 Canadian cents per unit on an annualized basis less a portion of the cost of the derivative instrument purchased by the fund to provide the holders of Class H units with some protection against any weakening of the U.S. dollar as compared with the Canadian dollar on termination and liquidation of the fund;
  • 5.417 U.S. cents per Class U unit, representing approximately 65 U.S. cents per unit on an annualized basis.

A wholly owned subsidiary of Starlight Group Property Holdings Inc., the manager of the fund, may at its sole discretion, discontinue the Class H unit liquidation hedge in the event that derivative instruments are not available on an economical basis or the manager determines that the continuation of the Class H unit liquidation is no longer in the best interests of holders of Class H units.

About Starlight U.S. Multi-Family (No. 5) Core 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 diversified income-producing rental properties in the U.S. multifamily real estate market. The fund currently owns 23 properties, consisting of 7,289 suites with an average year of completion of 2012.

For the fund's complete consolidated financial statements and management's discussion and analysis for the first quarter and any other information relating to the fund, please visit SEDAR. Further details regarding the fund's unit performance and distributions, market conditions where the fund's properties are located, performance by the fund's properties, and a capital investment update are also available in the fund's May, 2018, newsletter, which is available on the fund's profile at the Starlight website.

We seek Safe Harbor.

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