Pure Multi Family REIT LP
Annual Report 2012

Plain-text annual report

From the date of formation on May 8, 2012 to December 31, 2012 2012 Annual Report Our high‐quality apartment portfolio is unparalleled amongst our Canadian apartment REIT peers. Table of Contents 1. Letter to Our Unitholders Our Story - Investment Summary Strategically Building the Portfolio Creating Value for Our Investors Financial Highlights Looking Ahead 4. Management & Directors 5. Annual Meeting Information To Our Unitholders 2012 has been a benchmark year for Pure Multi-Family REIT LP. Since our IPO in July 2012, Pure Multi has raised over US$86.3 million in public offerings and has acquired six properties consisting of over 1,908 apartments located in the Dallas‐Fort Worth Metroplex area. Our portfolio has over 1.7 million square feet of rentable space situated on over 117 acres with 155 apartment buildings. Pure Multi has completed over US$171 million of acquisitions in 2012 with a weighted average cap rate of 7.04%. What separates us from our competitors is the quality of our assets, which we believe is unparalleled in the Canadian apartment REIT universe. With a weighted average year of construction of 1996, our assets can be classified as newer generation construction and feature prestigious gated community amenities such as community clubhouses and private movie theatres, 24-hour fitness facilities, resort-style swimming pools, tennis courts and outdoor kitchens with gas grills. Unit interiors offer luxury condo-quality unit finishings such as attached and detached garages, high ceilings, crown mouldings and high quality appliances. 1,908 Units Our Story - Investment Summary • Quality Assets • Attractive Sustainable Yield • Conservative Leverage • Experienced and Fully Aligned Management US$86.28 Million 1,472 Units Equity Raise 1,008 Units Property Acquisition 600 Units 390 Units US$57.5 Million IPO July 2012 including over-allotment Initial Portfolio Oakchase + Windscape Valley Ranch US$22.6 Million (210 Units) Sunset Point US$24.6 Million (408 units) Prairie Creek US$52.5 Million (464 units) October Bought Deal US$28.78 Million (including over- allotment) Bear Creek US$49.35 Million (436 units) Key Acquisitions Oackchase - July 2012 Windscape - July 2012 Valley Ranch - July 2012 Portfolio facts As at December 31, 2012. 96.4% O C C U PA N C Y 1,908 U N I T S 114 A C R E S 1.7M RENTABLE S.F. 4.23% WEIGHTED AVERAGE INTEREST RATE 7.3Yrs WEIGHTED AVERAGE MORTGAGE TERM TO MATURITY Us$108M T O TA L D E B T Us$171M TOTAL PURCHASE PRICES 7.0% WEIGHTED AVERAGE CAP RATE (2013E RUN-RATE) Us$905 A V G R E N T Strategically Building the Portfolio Pure Multi’s core strategy is to invest in high-quality multi-family assets in primary markets that produce a steady, sustainable yield and offer upside potential through capital appreciation. Pure Multi targets accretive acquisitions located within primary markets that offer strong job and population growth projections, and positive occupancy and rental rate growth trends. Initial target markets have included major, solid growth cities in Texas, Arizona, Nevada and Georgia that are experiencing pent-up demand which exceeds new supply due to muted development activity since 2007. Pure Multi believes that strong returns can be achieved by targeting high-quality apartment assets in these leading growth markets as the U.S. economic recovery gains momentum. Historically, U.S. multi-family real estate has generated strong investor returns, outpacing all other real estate sectors over the past 20 years, driven by: very diverse income streams, low and stable operating costs, • • • manageable capital expenditure requirements, solid, growing demand / occupancy and • favourable debt financing terms. • Pure Multi employs a very conservative financial strategy utilizing modest leverage with a targeted loan-to-value range of 55% - 65%. We implement a strategic value-add program that includes common area property improvements and selective unit interior upgrades which augment rental revenues and create capital value for investors. Pure Multi is unique in that it provides investors with a truly aligned management structure. We do not have any external asset management fees of any type. During the initial growth phase of up to $300 million in market capitalization, Pure Multi will not incur any management or staff overhead costs whatsoever. Instead, our management team is success driven and remunerated with REIT LP units (rather than any cash compensation). Sunset Point- Sept. 2012 Prairie Creek- October 2012 Bear Creek - October 2012 Creating Value for Our Investors Pure Multi executes a pro-active “Value-Add” strategy at our apartment communities. In addition to acquiring high-quality assets in desirable neighborhoods, Pure Multi looks to implement targeted improvements to enhance rental revenues. Such improvements include adding poolside outdoor kitchens, gas fire pit conversation areas, 24-hour fitness facilities, client business centres, clubhouse renovations, and selective unit interior upgrades. All of these improvements are undertaken with a goal of achieving the maximum return on invested capital through increased rental rates. The return on our invested capital is immediate. We are able to achieve rent increases from numerous suites as a certain number of leases expire each month and are then renewed at the higher rates. For example, by adding an outdoor kitchen with gas grills overlooking the pool area at a cost of $6,000, we have been able to achieve lease renewals at $10 to $20 Case Study Examples of Value-Add Improvements OUTDOOR KITCHEN OVERLOOKING POOL AREA ExAMPLE OF NEW FIRE PIT IN COMMON AREA Common area improvements such as this fire pit typically represent the ‘best dollars spent’ for capital improvements since every renter benefits from them. These types of improvements have enabled us to enhance our assets and generate significant value on invested capital through strong rental growth. above base rates. If just one renter pays $10 more per month, we earn $120 more revenue per year. When a 6% capitalization rate is applied to this increased revenue ($120 / 6% cap rate = $2,000 per year) the asset value increases by $2,000 - from just one rental unit. We also look to do targeted unit interior upgrades including the addition of faux wood vinyl flooring, which looks just like real hardwood at a fraction of the cost; cabinet re-facing; and the application of a cost- effective new spray-on application which goes on top of existing arborite countertops and changes the appearance to closely resemble granite countertops. (See the Prairie Creek Villas ‘before’ and ‘after’ kitchen pictures below). These unit interior improvements result in a rapid return on invested capital and a significant increase in asset value. The total ‘down-time’ for Pure Multi’s kitchen upgrade strategy, which includes faux wood flooring, spray-on “granite” counter finishing, stainless steel appliances, granite backsplashes and re-finished cabinets, is about five days and the transformation is impressive. Renters have been paying increases of $100 to $200 more per month for these improvements, which result in a rapid payback and dramatic value enhancements. Before - PRAIRIE CREEK VILLAS BASIC KITCHEN after - PRAIRIE CREEK VILLAS RENOVATED KITCHEN Financial Highlights Partnership Unit Distribution summary ($US per Unit, US Source Income) July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 $0.021 $0.03 $0.03 $0.03 $0.03 $0.03 Year ended December 31, 2012 Revenue Property NOI Funds from Operations FFO Per Class A Unit Distributions per unit Total Assets Mortgages Payable Total Debt to Gross Book Value $6,071,000 $3,096,000 $1,731,000 $0.12 $0.36 annual $194,636,000 $111,665,000 57.4% Looking Ahead Pure Multi ‘s core strategy focuses on acquiring properties in clusters in primary sunbelt markets that demonstrate strong job and population growth dynamics and positive occupancy and rental rate growth trends, such as Dallas and Houston, Texas, or Phoenix, Arizona. Pure Multi intends to expand into new property markets in the southeast and southwest regions of the United States that also exhibit similar strong growth characteristics. Such expansion will complement the initial portfolio and have the potential to create additional value. We will focus on strategically acquiring new, high quality resort-style apartment communities in the best neighborhoods of high-growth sunbelt cities. In the long term, Pure Multi’s growth strategy is to invest in quality multi-family real estate properties across all major, strong growth markets in the United States. Our initial base portfolio consists of very high quality assets in upper income sub-markets. Given that this is our first reporting period since our IPO, we do not have the benefit of comparative figures from previous periods, so perhaps the best metric is our projected 2013 run rate AFFO payout ratio of 85% - right in-line with management’s expectations. Due to our low cost, aligned management structure and our conservative balance sheet, we strongly believe that Pure Multi is very well positioned for future growth. On behalf of the management team at Pure Multi-Family REIT LP, I’d like to thank our directors for their hard work and loyalty and our unitholders for their continued support. Stephen Evans Chief Executive Officer July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 $0.021 $0.03 $0.03 $0.03 $0.03 $0.03 Management Directors Darren Latoski Director and Executive Chairman Samantha Adams Vice President Stephen Evans Director and Chief Executive Officer Scott Shillington, C.A. Chief Financial Officer Robert King Lead Independent Director James Redekop Independent Director Douglas Scott, C.A. Independent Director Head office 910-925 West Georgia Street Vancouver, BC Canada V6C 3L2 604-681-5959 T: E: info@puremultifamily.com www.puremultifamily.com Property Management office Suite 100 - 6529 Preston Road Plano, Texas USA 75024 transfer agent Computershare Trust Company of Canada 100 University Avenue, 9th Floor Toronto, ON M5J 2Y1 T: TF: F: TFF: 514-982-7555 1-800-564-6253 416-263-9394 1-888-453-0330 auditors KPMG LLP Chartered Accountants PO Box 10426, 777 Dunsmuir Street Vancouver, BC V7Y 1K3 604-691-3000 T: F: 604-691-3031 www.kpmg.ca corporate counsel Clark Wilson LLP 800-885 West Georgia Street Vancouver, BC V6C 3H1 604-891-7767 T: 604-687-6314 F: investor relations Andrew Greig, Director of Investor Relations T: TF: E: www.puremultifamily.com 604-681-5959 1-888-681-5959 agreig@puremultifamily.com stock exchange listing The TSx Venture listing symbol RUF.U annual Meeting of shareholders 11:00 am Pacific Daylight Time Monday, May 13, 2013 The Sutton Place Hotel Chateau Belair 845 Burrard Street Vancouver, BC V6C 3L2 P U R E MU LT I - FA M I LY R E I T L P | 9 1 0 - 9 2 5 W E S T G E O R G I A | VA N C O U V E R | B C | V 6 C 3 L 2 | C A N A D A 6 0 4 - 6 8 1 - 5 9 5 9 | W W W. P U R E M U LT I FA M I LY. C O M | I N F O @ P U R E M U LT I FA M I LY. C O M 

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