Pure Multi-Family REIT LP Announces Release of Fourth Quarter and 2017 Annual Financial Results and Conference Call

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Mar 07, 2018, 08:54 ET

"A Transformational Year as Property Management Internalization Completed and Same Property Growth Continues"

VANCOUVER, March 7, 2018 /PRNewswire/ - Pure Multi-Family REIT LP ("Pure Multi-Family") (TSXV: RUF.U, RUF.UN, RUF.DB.U; OTCQX: PMULF) is pleased to announce the release of its financial results for the three months and year ended December 31, 2017.

The results, consisting of Pure Multi-Family's audited consolidated financial statements for the year ended December 31, 2017, and management's discussion and analysis ("MD&A") of results of operations and financial condition dated March 7, 2018, are available on SEDAR at www.sedar.com and www.puremultifamily.com. All metrics are stated at Pure Multi's interest, which adjusts for any real estate taxes related to IFRIC 21, and dollar amounts are disclosed in U.S. dollars, unless otherwise indicated.

Stephen Evans, CEO of Pure Multi-Family, stated, "We are pleased to announce our fourth quarter and annual results for 2017. Our properties continued to deliver positive same property rental rate growth, however this was partially tempered by an increase in rent concessions in order to improve the occupancy across the portfolio. We believe these concessions are short-term in nature and will provide long-term stability to the portfolio. We are confident that our strategy of acquiring high-quality newer assets in growth markets will serve our investors well over the long-term as we continue to work our way through these short-term issues.

"All investment properties were successfully transitioned in-house from external property management prior to the start of the fourth quarter. The internalization of the property management function resulted in a significant increase in our same property net rental income this quarter compared to the prior year due to the elimination of external property management fees.

"As we have now completed the internalization of the property management function, we anticipate our vertically-integrated property management platform will be able to generate market, operational and financial data in real time, improve some of our leasing processes, achieve cost savings over the coming quarters, and provide a scalable platform for future growth. We are excited to announce that we have commenced the process to graduate to the TSX mainboard. We hope to receive conditional approval and graduate during the second quarter of 2018."

Financial Results

Based on investment properties owned as of January 1, 2016 and throughout the comparative periods: (i) for the three months ended December 31, 2017, Pure Multi-Family achieved same property revenue growth of 2.6% and same property net rental income ("NOI") growth of 14.6%, compared to the same period in the prior year; and (ii) for the year ended December 31, 2017, Pure Multi-Family achieved same property revenue growth of 2.7% and same property NOI growth of 3.8% compared to the same period in the prior year. For the three months and year ended December 31, 2017, the same property revenue growth was primarily driven by an increase in same property average rent per occupied unit, which was partially offset by an increase in concessions. Same property NOI, over these same periods, was positively impacted by the internalization of the property management function, which eliminated the payment of external property management fees. As the investment properties were internally transitioned on a property-by-property basis during the third quarter of 2017, only a portion of the 3% external property management fee was paid during of the year ended December 31, 2017 and no property management fees were paid during the three months ended December 31, 2017, compared to the full 3% external property management fee paid during the comparative periods.

On a per unit basis, Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") were both negatively impacted during the three months and year ended December 31, 2017 primarily due to the bought deal equity offerings completed during the prior quarters, the timing of the deployment of the net proceeds therefrom for acquisitions, the additional general and administrative ("G&A") expense incurred due to the internalization of property management and asset management functions, and the lowering of the overall leverage.

Pure Multi-Family incurred G&A expense of $1,683,447 during the three months ended December 31, 2017, and $5,369,059 during the year ended December 31, 2017. G&A expense as a percentage of revenues for the three months and year ended December 31, 2017 was 6.4% and 5.8%, respectively. Included in G&A expense during the three months and year ended December 31, 2017 were non-recurring expenditures resulting from the internalization of the property management function of $219,217 and $921,207, respectively. Removing these non-recurring expenditures results in an adjusted G&A expense as a percentage of revenue for the three months and year ended December 31, 2017 of 5.6% and 4.8%, respectively.

Property Management Internalization

Non-recurring initial costs were incurred during the year relating to establishing Pure Multi-Family's property management platform and the new Dallas Fort-Worth office. Although there was some duplication of costs during the transition phase, all investment properties were successfully transitioned in-house from external property management during the year.

During the three months ended December 31, 2017, no external property management fees were paid by Pure Multi-Family. Management believes the internalization of the property management function will be accretive to unitholders and drive per unit cash flow growth over the long-term.

Deleveraging the Statement of Financial Position

The Debt-to-Gross Book Value Ratio across Pure Multi-Family's portfolio was 53.4% as at December 31, 2017, representing an improvement of 180 basis points compared to December 31, 2016. Management has made a conscious effort to decrease leverage ratios on new acquisitions to improve overall portfolio leverage ratios as Pure Multi-Family continues to pursue growth. Pure Multi-Family incurred total debt of $162 million, representing a leverage ratio of 49.3%, to partially fund the seven acquisitions completed during 2017.

Although deleveraging can create a negative impact on payout ratios in the near term, management believes it is the fiscally responsible approach to ensure the long term stability and success of Pure Multi-Family.

Property Tax Appeals

As at December 31, 2017, only two property tax appeals relating to their respective 2017 property tax assessments remained outstanding. All seven property tax appeals that carried over from prior years were successfully settled during the year ended December 31, 2017, resulting in a total savings of $323,007.

Credit Facility

On November 28, 2017, Pure Multi-Family entered into an agreement with a Canadian chartered bank for a new secured credit facility (the "Facility") for $50 million with an accordion feature that allows for increased borrowing capacity of up to $100 million. The Facility expires in November 2020 and includes a 12-month extension option.

The Facility provides Pure Multi-Family with added financial flexibility and more efficient cash management, which is expected to have a positive impact on recurring AFFO.

Acquisitions

On October 2, 2017, Pure Multi-Family acquired PURE Farmers Market Apartments ("Farmers Market"), a 340 unit Class A multi-family apartment community located in Dallas, Texas, for $66.35 million. The purchase of Farmers Market was funded with cash on hand and new first mortgage financing in the amount of $33.5 million, bearing a fixed interest rate of 3.67% per annum for a term of 12 years.

On November 29, 2017, Pure Multi-Family acquired PURE Fillmore Apartments ("Fillmore"), a 230 unit Class A multi-family apartment community located in Phoenix, Arizona, for $55.95 million. The purchase of Fillmore was funded with cash on hand and debt proceeds from the Facility in the amount of $29.0 million.

AFFO Payout ratio

The primary reasons for the increased FFO and AFFO Payout Ratios during the year were due to excess cash on the balance sheet, resulting from the two equity offerings completed during Q2-2017, deployment of net proceeds therefrom for acquisitions, increases in property tax expenses and additional G&A expenses incurred as a result of the internalization of the property management and asset management functions.

Q4-2017 Financial Highlights


	As at December 31, 2017	As at December 31, 2016	Change
Debt to Gross Book Value Ratio	53.4%	55.2%	(180bps)
Fair Value of Investment Properties ($000's)	1,133,501	778,547	45.6%
Weighted Average Fair Value IFRS Capitalization Rate	5.17%	5.41%	(24bps)
Total Portfolio Leased Occupancy	95.0%	94.9%	10bps
Total Number of Investment Properties	22	15	46.7%
Total Number of Residential Units	7,085	5,229	35.5%
Portfolio Weighted Average Year of Construction	2007	2006	1 year

Q4-2017 Financial Highlights (continued)


	For the year ended December 31,			For the three months ended December 31,
($000's, except per unit amounts)	2017	2016	Change	2017	2016	Change
Weighted Average Class A Units Outstanding - Basic	68,926,987	51,553,540		76,729,771	55,418,872
Weighted Average Class A Units Outstanding - Diluted	72,958,845	55,739,002		76,729,771	55,497,401

Rental Revenue – Same Property⁽¹⁾	61,653	60,042	2.7%	15,568	15,179	2.6%
Rental Revenue – Non-Same Property	31,446	16,372	92.1%	10,632	4,937	115.4%
Rental Revenue – Total	93,099	76,414	21.8%	26,200	20,116	30.2%

Net Rental Income – Same Property ⁽¹⁾	34,869	33,608	3.8%	9,384	8,191	14.6%
Net Rental Income – Non-Same Property	14,990	8,084	85.4%	5,692	2,080	173.7%
Net Rental Income – Total	49,859	41,692	19.6%	15,076	10,271	46.8%

FFO ⁽²⁾	22,684	20,207	12.3%	7,526	4,584	64.2%
FFO Per Class A Unit – Basic	0.32	0.37	(15.0%)	0.10	0.08	20.1%
FFO Per Class A Unit – Diluted	0.32	0.37	(15.0%)	0.10	0.08	20.1%
FFO Payout Ratio	119.9%	101.5%	1,840bps	98.9%	119.7%	(2,080bps)

AFFO ⁽²⁾	21,146	18,981	11.4%	7,073	4,262	66.0%
AFFO Per Class A Unit – Basic	0.30	0.35	(15.7%)	0.09	0.07	21.4%
AFFO Per Class A Unit – Diluted	0.30	0.35	(15.7%)	0.09	0.07	21.4%
AFFO Payout Ratio	128.6%	108.0%	2,060bps	105.2%	128.8%	(2,360bps)

Average Rent Per Occupied Residential Unit – Same Property ⁽¹⁾	1,215	1,170	3.9%	1,228	1,191	3.1%
Average Physical Occupancy – Same Property ⁽¹⁾	95.5%	96.1%	(60bps)	96.0%	95.6%	40bps
⁽¹⁾Same Property – represents properties owned as at January 1, 2016 and throughout the comparative periods.
⁽²⁾Restated FFO and AFFO amounts for the three months and year ended December 31, 2016 to remove amortization of transaction costs and mortgage prepayment expense.

Q4-2017 Conference Call

Stephen Evans, CEO, Samantha Adams, SVP, and Scott Shillington, CFO, of Pure Multi-Family, will host the conference call at 10:00am (PST), 1:00pm (EST), on Thursday, March 8, 2018, to review the financial results and corporate developments for the quarter ended December 31, 2017.

To participate in this conference call, please dial one of the following numbers approximately 10 minutes prior to the commencement of the call, and ask to join the Pure Multi-Family REIT LP Conference Call.

Dial in numbers

• Toll free dial in number (from Canada and USA):	1-888-390-0546
• International or Local Toronto:	1-416-764-8688

Conference Call Replay

If you cannot participate on March 8, 2018, a replay of the conference call will be available by dialing one of the following replay numbers. You will be able to dial in and listen to the conference 120 minutes after the meeting end time, and the replay will be available until March 15, 2018.

Please enter the Replay ID# 159389, followed by the # key.

Replay Dial in number

• Toll free (from Canada or the USA):	1-888-390-0541
• International or Local Toronto:	1-416-764-8677

About Pure Multi-Family REIT LP

Pure Multi-Family is a Canadian based, publically traded vehicle which offers investors exclusive exposure to attractive, institutional quality U.S. multi-family real estate assets.

Additional information about Pure Multi-Family is available at www.puremultifamily.com and www.sedar.com.

Non-IFRS Financial Measures

This news release contains certain non-IFRS financial measures, including Pure Multi's interest, FFO, AFFO, same property NOI, rental revenue-same property, rental revenue-non-same property, net rental income, net rental income-same property, net rental income-non-same property, same property revenue, same property average rent per occupied residential unit, average rent per occupied residential unit, same property average physical occupancy, total portfolio leased occupancy, FFO payout ratio, AFFO payout ratio and any related per Unit amounts to measure, compare and explain Pure Multi-Family's operating results and financial performance. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. However, they do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. Please refer to Pure Multi-Family's MD&A (available on SEDAR at www.sedar.com) for the year ended December 31, 2017 for a reconciliation of the non-IFRS financial measures used herein to standardized IFRS measures.

Forward-Looking Information

Certain statements contained in this news release may constitute forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "expect", "may", "will", "intend", "should", and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Forward looking statements in this news release include: (a) we believe these concessions are short-term in nature and will provide long-term stability to the portfolio; (b) we are confident that our strategy of acquiring high-quality newer assets in growth markets will serve our investors well over the long-term as we continue to work our way through these short-term issues; (c) we anticipate our vertically-integrated property management platform will be able to generate market, operational and financial data in real time, improve some of our leasing processes, achieve cost savings over the coming quarters, and provide a scalable platform for future growth; (d) we hope to receive conditional approval and graduate during the second quarter of 2018; (e) management believes the internalization of the property management function will be accretive to unitholders and drive per unit cash flow growth over the long-term; and (f) although deleveraging can create a negative impact on payout ratios in the near term, management believes it is the fiscally responsible approach to ensure the long term stability and success of Pure Multi-Family.

Although Pure Multi-Family believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Pure Multi-Family can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, competitive factors in the industries in which Pure Multi-Family operates, prevailing economic conditions, the failure to obtain necessary regulatory approvals or satisfy the conditions to closing any proposed acquisitions, and other factors, many of which are beyond the control of Pure Multi-Family.

The forward-looking statements contained in this news release represent Pure Multi-Family's expectations as of the date hereof, and are subject to change after such date. Pure Multi-Family disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

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 THE ACCURACY OF THIS RELEASE.

SOURCE Pure Multi-Family REIT LP