Park At West Ave, San Antonio, TX
2015 ANNUAL REPORT
For the year ended December 31, 2015
TABLE OF CONTENTS
Letter to Our Unitholders | 01
2015 Financial Report | 10
Management Discussion and Analysis | 11
Consolidated Financial Statements | 48
Management and Directors |
Corporate Information | 81
80
* All amounts disclosed in this report are expressed in U.S. dollars
Livingston, Dallas, TX
TO OUR UNITHOLDERS,
“Strong performance equals strong results” summarizes 2015 for Pure Multi-Family REIT LP (“Pure Multi-Family”).
Throughout the year we increased our revenues, improved and increased our NOI and increased the quality and quantity
of our apartment portfolio. We achieved these successes through diligent, pro-active management resulting in very
strong, same-property rental rate growth, operating expense rationalization and strategic asset management wherein
we executed our “value-add/asset recycling program”, which renewed our portfolio age significantly.
From an acquisition perspective, we continued to demonstrate our disciplined, targeted and accretive acquisition
strategy acquiring three new, Class A apartment communities in two of our target markets, Dallas and San Antonio.
We successfully completed these acquisitions using a combination of new equity issuances and the net proceeds from
the disposition of three of our oldest assets. With these proceeds we acquired $173 million of apartment communities,
consisting of 1,037 individual apartment units.
The Park at West Ave and Brackenridge Apartments were two of the three properties acquired in 2015 and both
communities are located in San Antonio and represent our initial acquisitions in this market. The properties were built
in 2014 and each offers a luxury amenities package to the residents. Amalfi at Stonebriar was the third property we
acquired and the community is very well located in the heart of the incredible job growth currently taking place in the
Plano and Frisco sub-markets of Dallas. Amalfi was built in 2014 and offers our residents a luxury, urban-lifestyle by
providing easy access to work, shops and entertainment. With the addition of the three new properties, we increased our
total number of units from 4,308 at the end of 2014 to 4,437 at the end of 2015.
Pure View, San Antonio, TX
1
Recycling Capital into New Acquisitions
As previously discussed, a key component to our acquisition
strategy is to recycle capital by profitably selling our older
(by age of construction) assets and redeploying the net
proceeds into new construction, Class A properties. In 2015,
we executed the disposition of three of our oldest properties
that were more capital intensive and had lower operating
margins than our newly constructed properties: Sunset
Point Apartments, Oakchase Apartments and Windsong
Apartments.
We acquired Sunset Point in September 2012 for $24.6
million and it was originally acquired as two separate
but neighbouring properties. We combined the property
operations on acquisition
in order to achieve almost
immediate operational efficiencies and executed our value-
add strategy that we have implemented at other properties
in our portfolio. We sold the property for $27.95 million
representing an annualized gain on equity of over 22%.
The net proceeds from this sale were combined with other
equity to acquire Park at West Ave, located in San Antonio.
A similar value-add approach was followed at Oakchase
Apartments. This property was acquired in July 2012 for
$13.6 million and successfully sold in September 2015 for
$17.85 million. The sale represented an annualized gain on
equity of approximately 27%. The net cash proceeds were
used to acquire Brackenridge Apartments.
In December 2015, Pure Multi-Family announced the sale of
Windsong Apartments. Acquired in July 2013 for a purchase
price of $16.5 million, we profitably sold Windsong for
$22.0 million, representing an annualized gain on equity of
approximately 26%. With the net proceeds from the sale of
Windsong, together with the proceeds from the equity raise
in December, we completed the acquisition of two Class A
properties in San Antonio subsequent to year end.
Pure Estates at TPC and Pure View at TPC were acquired on
March 1, 2016. Pure Estates at TPC was constructed in 2007
and consists of 344 luxury residential units averaging 1,135
square feet. The 34.8 acre Class A community is located in
the San Antonio sub-market of Cibolo Canyons and features
a luxurious 13,000 square foot clubhouse, a 3,500 square foot
fitness centre, an onsite European Grand Spa, townhome
buildings with attached garages, a resort style swimming
pool and barbeque areas with grills for outdoor entertaining.
Pure View at TPC was constructed in 2014 and consists of
416 brand-new luxury residential units averaging 943 square
feet. The 19.4 acre Class A community is also located in the
San Antonio sub-market of Cibolo Canyons and sits on top
of the highest hilltop in San Antonio, giving expansive views
of downtown San Antonio and the neighbouring TPC golf
courses. Pure Multi-Family’s portfolio now consists of 5,197
apartments (4,308 apartments in 2014) and over 4.8 million
square feet of rentable space situated on over 298 acres of
land (236 acres of land in 2014).
DISPOSITION
OF SUNSET POINT
$27.95M
JANUARY
Livingston, Dallas, TX
DISPOSITION
OF OAKCHASE
$17.85M
SEPTEMBER
2
SEPTEMBER
ACQUISITION
OF BRACKENRIDGE
$51.0M
EQUITY OFFERING
DECEMBER
$39.2M
Our resulTs
Prairie Creek Villas, Dallas, TX
PURE RESULTS
Pure Multi-Family achieved strong financial results in 2015:
•
•
•
•
5.7% same property total rental revenue growth (2015 vs 2014)
Total rental revenues increased 21.5% over 2014 - $58.9 million in 2015 compared to $48.5
million in 2014
2015 net operating income margin of 55.5%, an increase from 53.9% in 2014
7.2% same property net operating income (“NOI”) growth (2015 vs. 2014)
We believe that not only is it important to highlight Pure Multi-Family’s strong 2015 operating results, but also that Pure
Multi-Family is unique in that we provide investors with a truly aligned management structure. As a reminder to our
unitholders, Pure Multi-Family does not permit external asset management or transaction fees to be paid to management.
We have established a structure, through the issuance of our Class B units that is success driven. Management is not
remunerated in any other manner until we reach a $300 million market capitalization, at which point Pure Multi-Family will
internalize asset management at no cost to the REIT. As management of Pure Multi-Family we remain committed to fully
aligning our interests with those of our unitholders.
MAY
ACQUISITION
OF PARK WEST
$54.25M
EQUITY OFFERING
MAY
$35.2M
AUGUST
ACQUISITION
OF AMALFI
STONEBRIAR
$67.5M
DISPOSITION
OF WINDSONG
$22.0M
DECEMBER
Fairways at Prestonwood, Dallas, TX
3
OUR LOCATIONS - LEADERS IN POPULATION
PURE STRATEGY
Pure Multi-Family’s core strategy remains unchanged since
IPO, focusing on Class A, high quality multi-family apartment
communities in primary markets that produce a steady,
sustainable yield while offering investors significant annual
organic growth. It has been our experience that newer
construction, Class A properties have stronger operating
efficiencies, lower maintenance and capital expenses and
benefit from the ability to generate stronger rental rate
growth as the residents generally have higher disposable
incomes. The stable and growing income produced by these
high quality properties stems from the strong demand in
the multi-family real estate sector. This demand continues to
be driven by employment and population growth, lifestyle
choices and limited new supply in our target markets. We
believe our operational focus on increasing revenues and
maintaining strong NOI margins will continue to drive
shareholder value.
PURE APARTMENTS
By way of a summary, U.S. multi‐family real estate has
generated strong investor returns over the last 20 years,
driven by:
•
•
•
•
Very diverse and thus stable income streams;
Steady and predictable operating costs;
Manageable capital expenditure requirements;
Favourable debt financing terms.
These drivers are evident across Pure Multi-Family’s portfolio.
The current portfolio has a leased occupancy rate of 97.3%
which remains in-line with our 2014 occupancy rate of 98.2%
and has minimal capex requirements. It is important to note
that our occupancy takes into account our 2015 acquisitions
that were in the final stages of lease up during this period.
Our portfolio produces an attractive, sustainable yield and
allows us to maintain conservative leverage with a targeted
debt to gross book value ratio of 55% - 60%.
However, we believe that, as in previous years, what continues
to differentiate Pure Multi-Family from its competitors is the
quality of our apartment communities. With a weighted
average year of construction of 2003 at year end, compared
to 1996 at year-end 2014, our properties can be classified
as newer construction. As highlighted above, and as further
supported by our results, we continue to believe that that
there is a clear advantage to acquiring and managing a
Class A portfolio of assets. Our communities offer luxurious
amenities such as resort-style swimming pools, outdoor
kitchens and lounge areas, tennis courts, sand volleyball
courts, gated dog parks, clubhouses with 24-hour fitness
centres, private function and meeting facilities, business
centres, movie theatres and ample lush green space. The
units offer high-end condominium style finishes as well as
attached and detached garages.
Our current core markets, Dallas-Fort Worth, Houston,
Phoenix and San Antontio, have been consistently ranked
in the top performing metropolitan areas in the U.S. for
both employment and population growth. The concern
regarding the Houston market is still present. Pure Multi-
Family currently owns two properties
in the greater
Houston area, which represent approximately 13% of our
total revenues and units. While we have not experienced
any weakness that can be attributed to the layoffs in the oil
and gas sectors of the economy, we will continue to monitor
the market closely. Houston is a more diversified economy
than in previous downturns and our two properties are in
sub-markets with employers that have benefitted from
lower oil prices including agriculture, manufacturing and
4
Pure Estates, San Antonio, TX
AND EMPLOYMENT GROWTH
transportation industries as well as
the significant expansion of the Port of
Houston. We do expect that moderate
rental rate growth will continue at our
properties and the general consensus
is that job growth should continue
in our Houston sub-markets in 2016,
albeit at slower levels than in 2015.
is
also
continuing
to
Phoenix
experience job and population growth.
Current unemployment rates remain
lower than the national average and
Phoenix is expected to achieve higher
than average population growth
throughout 2016. Businesses continue
to be drawn to Phoenix not only as a
hub in the southwestern region of
the United States, but also due to its
close proximity to Los Angeles and
Las Vegas, low taxes and affordable
operating costs.
its
In 2015, Pure Multi-Family expanded
fourth metroplex. San
into
Antonio has a strong, diversified
economy anchored by
five key
industries: healthcare, biotechnology,
tourism and
government/military,
energy. Located at the crossroads of
several major interstate highways and
railroads serving both coasts, as well
as the NAFTA corridor San Antonio is
considered to be an international trade
centre, as more than half of the trade
flow between Mexico and the United
States travels through San Antonio.
Considered to be one of the five least
expensive metros in the U.S. to do
business, the City of San Antonio has
been actively encouraging startups
and corporate relocations to the metro
area. As a result the city continues to
attract Millenials and young families
drawn to the lower cost of living, and
easy lifestyle that the city affords.
Both Park at West and Brackenridge
were in the final stages of lease up on
acquisition and we anticipate that as
we move into 2016 both properties will
stabilize as we implement our tenant,
management and leasing standards.
in
the north-Dallas
The majority of our portfolio
is
located within the Dallas-Forth Worth
specifically
metroplex, and more
in
sub-markets
which continue to experience very
strong job and population growth.
DFW has one of the most diversified
economies
the United States.
DFW has benefited from increasing
concentrations of technology firms,
corporate headquarters, distribution
and
warehouses,
health centres, related manufacturing
businesses and construction industry
to
is expected
operations. DFW
continue experiencing strong
job
and population growth which will
further contribute to above average
performance at our multi-family
properties in 2016.
infrastructure
DALLAS
HOUSTON
SAN
ANTONIO
PHOENIX
We believe that strong returns can be
achieved by continuing to target high
quality properties in these markets
and other leading markets that are
strong economic
also displaying
fundamentals. The U.S. multi-family
features an
large and
market
is
abundant
acquisition
supply of
opportunities at attractive price
levels, permitting Pure Multi-Family
to execute our growth strategy with
discipline.
Pure lIVING
It is our goal at Pure Multi-Family to offer
the best experience for our residents,
who are as varied as our properties.
Amalfi, Frisco, TX
5
LOOKING FORWARD
Our residents range from single professionals to young
families and retirees; our larger overall average unit
size allows us to attract a varied group of residents that
enables us to diversify our income stream. But across
our entire portfolio of properties, the common thread
is quality of service, the quality of our amenities and
units, and the pride our on-site teams take in creating a
happy, safe and vibrant apartment community.
One of the key drivers of the strong demand for U.S.
multi-family apartments continues to be the Millenials.
Just as their parents (the Baby Boomers) drove dramatic
long term growth in certain areas of the economy, this
demographic is estimated to be between 72-80 million
strong in the United States and they have a very high
propensity to rent.
Lifestyle amenities continue to be a priority for many
of this generation and luxury amenities like those
found at our properties serve as additional draws to
attract this group of renters. Millenials generally choose
to rent rather than own during their career-building
years as renting affords a great low maintenance
standard of living with the flexibility to transfer from
one city to another with ease to pursue their career
paths. This generation tends to prefer to live in close
proximity to their jobs, shops and entertainment, as
well as public transportation. As in past years, negative
sentiment continues to cloud home ownership and
when combined with the lifestyle choices of the
Millenials, most analysts anticipate that this generation
will continue to put upward pressure on rental rates
which will in turn to drive profitability and values in the
apartment sector for several years to come.
lOOKING FOrWArD
In summary, we continue to build a Class A apartment
portfolio spread across the strongest growth markets in
the U.S. sunbelt, and we have repeatedly demonstrated
that we can rework our portfolio to enhance its value
by recycling our equity through profitable sales of our
oldest assets.
6
Pure Estates, San Antonio, TX
San Brisas, Phoenix, AZ
Management’s calculated net asset value is US$6.24 and trending upwards with our most recent acquisition
announcement located in San Antonio, Texas. We are among the leaders in the Canadian REIT sector, with
operational results that drive shareholder value including:
•
•
•
Very robust same-store NOI growth of 7.2% year over year
Strong and consistent occupancy levels
A trend of decreasing our payout ratio on a run rate basis
Despite these strong results, delivered quarter after quarter, and our net asset value of US$6.24, there has
been, and in fact still continues to be, a valuation disconnect in terms of our current trading range which offers
investors an exciting growth prospect in what is generally considered to be the most conservative sector of
commercial real estate.
Our same property revenue growth, year over year, was a very robust 5.7%. With our solid rental rate growth,
combined with long term, fixed mortgage interest rates, our very low cost structure and improving net
operating income margins, we believe that Pure Multi-Family will continue to position itself as a leader in our
asset class.
Our goals remain unchanged - build the best Class A portfolio across key markets in the U.S. sunbelt, while
enhancing shareholder value through our unique structure, hands-on management, capital recycling and
strategic, disciplined acquisitions. We are looking forward to an exciting and busy 2016. We would like to
sincerely thank all of our unitholders for their continued support and our Board of Directors and the Pure Multi-
Family team for their continued commitment to our goals.
Yours truly,
Steve Evans, CEO and Unitholder
7
PORTFOLIO SUMMARY
Deer Park, Houston, TX
IN-PLACE RENTS AND OCCUPANCY TRENDS
JANUARY 2015 TO DECEMBER 2015
98.2%
98.5%
98.5%
98.6%
98.5%
99.2%
99.5%
99.0%
98.4%
97.1%
97.2%
97.5%
97.0%
96.6%
97.4%
97.6%
97.4%
97.4%
97.3%
97.1%
97.2%
96.1%
95.9%
96.2%
$1.169
$1.180
$1.187
$1.230
$1.207
$1.258
$1.261
$1.265
$1.131
$1.143
$1.148
$1.153
January
February
March
April
May
June
July
August
September
October
November December
Avg rent per sq.ft.
Avg physical occupancy
Avg leased occupancy
2015
AVERAGE
LEASED
OCCUPANCY
98.3%
8
Preserve at Arbor hills, Dallas, TX
SAME PROPERTY
NOI GROWTH
2015
7.2%
Bear Creek, Dallas, Texas
Park at West, San Antonio, TX
TOTAL REVENUE GROWTH
2015
21.5%
FINANCIAL HIGHLIGHTS
($000’s except
per unit amounts)
Year ended
December 31, 2015
Year ended
December 31, 2014
Revenue
Property NOI
NOI margin
Income for the year
Funds from operations
FFO per class A unit
Distributions per unit
FFO payout ratio
$58,876
$32,696
55.5%
$51,179
$18,363
$0.439
$0.375
86.1%
$48,475
$26,111
53.9%
$41,949
$14,399
$0.463
$0.375
82.8%
As at December 31,
2015
As at December 31,
2014
Total assets
Mortgages payable
$691,153
$354,202
Total debt to gross book value
54.6%
Weighted average interest rate
on mortgages payable
3.72%
$492,791
$256,735
57.9%
3.86%
PORTFOLIO HIGHLIGHTS*
• Number of units: 4,437
• Number of acres: 243
•
•
•
Rentable square feet: 4.1 million
Portfolio employs only property level debt
Target loan to gross book value range: 50% to 60%
(to a maximum of 70%)
•
Loan to portfolio value: 58.2%
* As at December 31, 2015
Walker Commons, League City, TX
9
2015 FINANCIAL REPORT
Management’s Discussion and Analysis
Consolidated Financial Statements
For the year ended December 31, 2015
10
Brackenridge at Midtown, San Antonio, TX
PURE MULTI-FAMILY REIT LP
Management’s Discussion and Analysis
For the year ended December 31, 2015
Dated: March 10, 2016
Pure View, San Antonio, TX
11
Pure Multi-Family REIT LP
MD&A – December 31, 2015
SECTION I
FORWARD-LOOKING DISCLAIMER
The following management’s discussion and analysis (“MD&A”) of the results of operations and the financial
condition of Pure Multi-Family REIT LP (“Pure Multi”) for the year ended December 31, 2015 should be read in
conjunction with Pure Multi’s audited consolidated financial statements for the year ended December 31, 2015,
available on SEDAR at www.sedar.com and on Pure Multi’s website at www.puremultifamily.com. Historical results,
including trends which might appear, should not be taken as indicative of future operations or results.
Certain information in this MD&A contains forward-looking information within the meaning of applicable securities
laws (also known as forward-looking statements) including, among others, statements made or implied under the
headings “Outlook”, “Results of Operations”, “Financial Condition”, “Liquidity and Capital Resources” and “Risks
and Uncertainties” relating to Pure Multi’s objectives, strategies to achieve those objectives, beliefs, plans, estimates,
projections and intentions; and similar statements concerning anticipated future events, results, circumstances,
performance or expectations that are not historical facts. Forward-looking statements generally can be identified by
words such as “outlook”, “believe”, “expect”, “may”, “anticipate”, “should”, “intend”, “estimates” and similar
expressions.
In particular, certain statements in this MD&A discuss Pure Multi’s anticipated future events. These statements
include, but are not limited to:
(i) Pure Multi’s growth strategy, including the accretive acquisition of properties and the anticipated extent of the
accretion of any acquisitions, which could be impacted by demand for properties and the effect that demand has
on acquisition capitalization rates and changes in the cost of capital;
(ii) maintaining occupancy levels and rental revenue, which could be impacted by changes in demand for Pure
Multi’s properties, financial circumstances of tenants, including tenant defaults, the effects of general economic
conditions and supply of competitors’ properties in proximity to Pure Multi’s properties;
(iii) overall indebtedness levels, which could be impacted by the level of acquisition activity Pure Multi is able to
(iv)
(v)
achieve, fair value of its properties and future financing opportunities;
tax status of Pure US Apartments REIT Inc., which can be impacted by regulatory changes enacted by
governmental authorities;
anticipated distributions and payout ratios, which could be impacted by capital expenditures, results of operations
and capital resource allocation decisions;
(vi) obtaining and maintaining adequate insurance for Pure Multi’s properties; and
(vii) anticipated interest rates and exchange rates.
Forward-looking statements are provided for the purpose of presenting 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 statements involve significant risks and uncertainties and should not be read as
guarantees of future performance or results. Those risks and uncertainties include, among other things, risks related
to: unit prices; liquidity; credit risk and tenant concentration; interest rate and other debt related risk; tax risk; ability
to access capital markets; lease rollover risk; competition for real property investments; environmental matters;
changes in legislation; and indebtedness of Pure Multi.
Management believes that the expectations reflected in forward-looking statements are based upon reasonable
assumptions and information currently available, which include, management’s current expectations, estimates and
assumptions that: proposed acquisitions will be completed on the terms and basis agreed to by Pure Multi, property
acquisition and disposition prospects and opportunities will be consistent with Pure Multi’s experience over the past
12 months, the multi-family residential real estate market in the “Sunbelt” region in the United States will remain
strong, the global economic environment will remain stable, interest rates will remain at current levels, and Pure
Multi’s business strategy, plans, outlook, projections, targets and operating costs will be consistent with Pure Multi’s
12
Pure Multi-Family REIT LP
MD&A – December 31, 2015
experience over the past 12 months, Pure Multi will be able to maintain occupancy at current levels, tenants will not
default on lease terms, governmental regulations and taxation will not change to adversely affect Pure Multi’s business
and financial results, and Pure Multi will be able to obtain adequate insurance and financing; however, management
can give no assurance that actual results will be consistent with these forward-looking statements.
Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. When relying
on forward-looking statements to make decisions with respect to Pure Multi, investors and others should carefully
consider the foregoing factors and other uncertainties and potential events.
These forward-looking statements are made as of March 10, 2016 and Pure Multi assumes no obligation to update or
revise them to reflect new events or circumstances, except as required by law.
BASIS OF PRESENTATION
Unless otherwise noted, all financial information has been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The financial
information included in this MD&A for the year ended December 31, 2015 includes material information up to March
10, 2016. Except as otherwise stated in this MD&A, all dollar amounts in this MD&A, including per unit amounts,
are stated in U.S. dollars.
All references herein to “consolidated” refer to amounts as reported under IFRS. All references to “Pure Multi’s
interest” refer to a non-IFRS measure presented on a proportionally consolidated basis and assumes Pure Multi
prorates and accrues property tax liability and expense based on the time period of ownership throughout a given
reporting year. For a reconciliation of Pure Multi’s results of operations, see “Results of Operations Reconciliation”.
Certain figures in this MD&A are non-IFRS measures, including, Pure Multi’s interest, Funds from Operations or
FFO, Adjusted Funds from Operations or AFFO, Distributable Income or DI, same property net rental income, same
property revenue, same property average monthly rent per occupied unit, rental revenue - same property, rental
revenue - properties acquired/sold, net rental income - same property and net rental income - properties acquired/sold.
For an IFRS to non-IFRS reconciliation, see “Results of Operations Reconciliation”, “Distributable Income” and
“Liquidity and Capital Resources – Funds from Operations and Adjusted Funds from Operations”.
OVERVIEW
About Pure Multi
Pure Multi is a Canadian-based publically traded vehicle which offers investors exclusive exposure to U.S. multi-
family real estate assets. It offers investors the ability to participate in monthly distributions, with potential for capital
appreciation, stemming from ownership of quality apartment assets located in core cities within the Southwestern and
Southeastern portions of the U.S., including states such as Texas, Arizona, Georgia and Nevada (collectively, the
“Sunbelt”).
13 Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pure Multi is a limited partnership formed under the Limited Partnership Act (Ontario) to indirectly invest in multi-
family real estate properties in the United States. Pure Multi was established by Pure Multi-Family Management
Limited Partnership (the “Managing GP”), its managing general partner, and Pure Multi-Family REIT (GP) Inc.
(the “Governing GP”), its governing general partner, pursuant to the terms of a Limited Partnership Agreement (the
“LP Agreement”), as may be amended from time to time. Pure Multi’s head office and address for service is located
at 910 – 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2. A copy of the LP Agreement can be
obtained from the Chief Financial Officer of Pure Multi or on SEDAR at www.sedar.com.
Pure Multi, through Pure US Apartments REIT Inc. (the “US REIT”), was established for, among other things, the
purposes of acquiring, owning and operating multi-family real estate properties in the United States.
Operational and Financial Highlights (all metrics stated at Pure Multi’s interest (1))
During the year ended December 31, 2015, Pure Multi acquired three investment properties, each completing
construction in 2014, for a combined purchase price of $112,100,000 and profitably sold three of its oldest assets,
each being constructed during the mid-1980’s, for combined proceeds of $67,800,000. This resulted in Pure Multi
renewing its portfolio average year of construction to 2003, at December 31, 2015, compared to 1996, at December
31, 2014.
During the fourth quarter of 2015, Pure Multi increased total revenues by 18.2% compared to the same period in 2014,
and realized an increase of 6.6% in same property net rental income growth(2), an increase of 5.7% in same property
revenue growth(3) and an increase of 5.7% in same property average monthly rent per occupied unit(4), compared to
the same period in 2014. During the year ended December 31, 2015, Pure Multi increased total revenues by 21.5%
compared to the same period in 2014, and realized an increase of 7.2% in same property net rental income growth(2),
an increase of 5.7% in same property revenue growth(3) and an increase of 5.8% in same property average monthly
rent per occupied unit (4), compared to the same period in 2014.
Pure Multi earned an average monthly rent per occupied unit of $1,131, or $1.257 per square foot, on its entire portfolio
during the three months ended December 31, 2015 (three months ended December 31, 2014 - $989 and $1.117,
respectively), representing an increase of 14.4% per occupied unit over the same period in the prior year. For the year
ended December 31, 2015, Pure Multi earned average monthly rent per occupied unit of $1,078, or $1.194 per square
foot, on its entire portfolio (year ended December 31, 2014 - $958 and $1.090, respectively), representing an increase
of 12.5% per occupied over the same period in the prior year.
At December 31, 2015, Pure Multi had mortgages payable of $354.2 million, with a weighted average interest rate of
3.72% and a weighted average term remaining until maturity of 9.4 years (December 31, 2014 - $256.7 million, 3.86%
and 6.8 years, respectively).
Pure Multi had a loan to gross book value of 54.6% as at December 31, 2015 (December 31, 2014 – 57.9%), well
below the maximum indebtedness level of 70% stipulated in the LP Agreement. See “Capital Structure”.
Notes:
(1)
Pure Multi’s interest (non-IFRS measure); (1) represents the proportionate share of all assets, liabilities, revenues and expenses
of all its portfolio investments, and (2) prorates and accrues property tax liability and expense on all portfolio investments,
based on the time period of ownership throughout the given reporting year.
Same property net rental income growth (non-IFRS measure) represents property net rental income for properties owned
during the entire comparative periods.
Same property revenue growth (non-IFRS measure) represents total property revenues, including other income, for properties
owned during the entire comparative periods.
Same property average monthly rent per occupied unit (non-IFRS measure) represents average monthly rental income for
occupied units, net of concessions and discounts, for properties owned during the entire comparative periods.
(2)
(3)
(4)
14
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pure Multi’s interest
Number of properties
Number of residential units
Physical Occupancy
Leased Occupancy
Investment properties (000’s)
Mortgages payable (000’s)
Weighted average effective interest rate on mortgages payable
Loan to gross book value
As at December 31, 2015 As at December 31, 2014
14
4,308
97.6%
98.2%
$ 468,518
$ 256,735
3.86%
57.9%
14
4,437
96.2%
97.3%
$ 613,682
$ 354,202
3.72%
54.6%
Pure Multi’s interest
($000s, except per unit basis)
(all per unit amounts based on basic weighted
average number of units outstanding)
Rental revenue - same property(1)
Rental revenue - properties acquired/sold(2)
Total rental revenue - Pure Multi’s interest(3)
Net rental income - same property(4)
Net rental income - properties acquired/sold(5)
Total net rental income - Pure Multi’s interest(3)
Net rental income margin
Basic weighted average number of units outstanding
Class A units
Class B units
Distributions
per Class A unit
per Class B unit
Distributable income(3)
per Class A unit
per Class B unit
Payout ratio
Funds from operations(3)
per Class A unit
per Class B unit
Payout ratio
Adjusted funds from operations(3)
per Class A unit
per Class B unit
Payout ratio
$
For the
year ended
December 31,
2015
35,124
23,752
58,876
19,408
13,288
32,696
55.5%
$
For the
year ended
December 31,
2014
33,235
15,240
48,475
18,105
8,007
26,112
53.9%
$
For the three
months ended
December 31,
2015
12,093
4,454
16,547
6,827
2,283
9,110
55.1%
$
For the three
months ended
December 31,
2014
11,440
2,556
13,996
6,402
1,258
7,660
54.7%
39,761,071
200,000
15,810
0.38
3.95
18,652
0.45
4.66
84.8%
18,364
0.44
4.59
86.1%
17,363
0.42
4.34
91.1%
29,512,727
200,000
11,919
0.38
2.98
14,467
0.47
3.62
82.4%
14,399
0.46
3.60
82.8%
13,280
0.43
3.32
89.8%
43,429,172
200,000
4,362
0.10
1.09
4,959
0.11
1.24
88.0%
4,885
0.11
1.22
89.3%
4,607
0.10
1.15
94.7%
34,834,824
200,000
3,438
0.09
0.86
4,413
0.12
1.10
77.9%
4,345
0.12
1.09
79.1%
4,080
0.11
1.02
84.3%
Notes:
(1) Rental revenue - same property (non-IFRS measure) represents total property revenues, including other income, for properties
owned during the entire comparative periods.
(2) Rental revenue - properties acquired/sold (non-IFRS measure) represents total property revenues, including other income, for
(3)
properties which were acquired or sold, therefore not owned during the entire comparative periods.
For an IFRS to non-IFRS reconciliation, see “Results of Operations Reconciliation”, “Distributable Income”, and “Liquidity
and Capital Resources – Funds from Operations and Adjusted Funds from Operations”.
(4) Net rental income - same property (non-IFRS measure) represents property net rental income for properties owned during the
entire comparative periods.
(5) Net rental income - properties acquired/sold (non-IFRS measure) represents property net rental income for properties which
were acquired or sold, therefore not owned during the entire comparative periods.
15
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Portfolio Summary
As at December 31, 2015, Pure Multi’s portfolio consists of 14 investment properties, with an aggregate of 4,437
residential units, located within four metropolitan areas: (i) Dallas - Fort Worth (“DFW”), Texas, (ii) Houston, Texas,
(iii) San Antonio, Texas and (iv) Phoenix, Arizona.
The weighted average physical occupancy rate was 96.2% and weighted average leased occupancy rate was 97.3%
for all properties owned as at December 31, 2015 (December 31, 2014 – 97.6% and 98.2%, respectively). Typical
residential property leases have terms between one to 12 months.
Property Name
Location
Amalfi at Stonebriar
DFW, TX
Preserve at Arbor Hills
DFW, TX
Fairways at Prestonwood
DFW, TX
Vistas at Hackberry Creek
DFW, TX
Fountainwood Apartments
DFW, TX
Livingston Apartments
DFW, TX
Stoneleigh at Valley Ranch
DFW, TX
Prairie Creek Villas
DFW, TX
Stoneleigh at Bear Creek
DFW, TX
DFW, TX
Walker Commons
Houston, TX
The Boulevard at Deer Park
Houston, TX
Houston, TX
Brackenridge at Midtown
San Antonio, TX
Park at West Avenue
San Antonio, TX
Year of
Acquisition
Year of
Construction Units
As at December 31, 2015
Fair
Market
Value
($000s)
Debt to
Fair
Market
Value
Cap
Rate
Physical
Occupancy
Leased
Occupancy
2015
2014
2013
2013
2013
2013
2012
2012
2012
2014
2013
2015
2015
2014
395
$ 67,529
66.6%
5.00%
94.9%
95.4%
1998
1991
1984
1986
1998
1999
1997
2004
330
156
560
288
180
210
464
436
46,136
53.3%
5.50%
98.5%
99.1%
20,800
41.7%
5.50%
96.2%
97.4%
53,460
55.2%
6.00%
97.7%
98.6%
26,100
48.8%
6.00%
97.2%
99.3%
30,614
50.7%
5.50%
96.7%
97.8%
28,068
48.7%
5.50%
97.1%
97.6%
75,277
61.6%
5.65%
97.0%
98.7%
56,895
56.4%
5.50%
98.4%
99.5%
1999
3,019
404,879
56.4%
5.54%
97.2%
98.3%
2008
2000
352
216
47,954
59.4%
6.00%
98.3%
99.1%
25,731
63.6%
5.75%
98.6%
99.1%
2005
568
73,685
60.9%
5.91%
98.4%
99.1%
2014
2014
282
360
51,002
60.0%
5.00%
90.1%
91.8%
54,362
67.1%
5.20%
90.0%
91.8%
San Antonio, TX
2014
642
105,364
63.7%
5.10%
90.0%
91.1%
San Brisas Apartments
Phoenix, AZ
2013
& 2014
1996
208
29,754
57.1%
5.35%
95.2%
97.6%
Portfolio Total/Average
2003
4,437
$ 613,682
58.2%
5.50%
96.2%
97.3%
16
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Properties Acquired During 2015
On May 7, 2015, Pure Multi, through the US REIT, acquired Park at West Avenue, a multi-family apartment
community (“Park West”), located in San Antonio, Texas, for a purchase price of $54,250,000, plus standard closing
costs and adjustments. This acquisition was financed with cash and a new 15 year mortgage in the amount of
$36,500,000.
On August 10, 2015, Pure Multi, through the US REIT, acquired Amalfi Stonebriar, a multi-family apartment
community (“Amalfi”), located in Frisco, Texas, for a purchase price of $67,500,000, plus standard closing costs and
adjustments. This acquisition was financed with cash from the May 2015 Offering (as defined below) and a new 12
year mortgage in the amount of $45,000,000.
On September 30, 2015, Pure Multi, through the US REIT, acquired Brackenridge at Midtown, a multi-family
apartment community (“Brackenridge”), located in San Antonio, Texas, for a purchase price of $51,000,000, plus
standard closing costs and adjustments. This acquisition was financed with cash May 2015 Offering and a new 12
year mortgage in the amount of $30,600,000.
Properties Sold During 2015
On January 14, 2015, Pure Multi, through the US REIT, sold Sunset Point Apartments, a multi-family apartment
community (“Sunset Point”), located in Arlington, Texas, for a sale price of $27,950,000, less standard closing costs
and adjustments. The mortgage payable, secured by Sunset Point, was assumed by the purchaser on the same date.
On September 2, 2015, Pure Multi, through the US REIT, sold Oakchase Apartments, a multi-family apartment
community (“Oakchase”), located in Arlington, Texas, for a sale price of $17,850,000, less standard closing costs and
adjustments. The mortgage payable, secured by Oakchase, was paid in full as of the same date.
On December 30, 2015, Pure Multi, through the US REIT, sold Windsong, a multi-family apartment community,
located in Dallas, Texas, for a sale price of $22,000,000, less standard closing costs and adjustments.
May 2015 Class A Unit Offering
On May 8, 2015, Pure Multi completed a public offering (the “May 2015 Offering”) of 6,900,000 Class A Units, at a
price of $5.10 per Class A Unit, for gross proceeds of $35,190,000, less offering costs.
The May 2015 Offering was completed on a “blind-pool” basis, meaning there were no properties identified for
acquisition at the time of the offering. The net proceeds from the May 2015 Offering were used to fund the purchase
price of Amalfi on August 10, 2015 and to partially fund the purchase price of Brackenridge on September 30, 2015.
December 2015 Class A Unit Offering
On December 11, 2015, Pure Multi completed a public offering (the “December 2015 Offering”) of 7,250,000 Class
A Units, at a price of $5.40 per Class A Unit, for gross proceeds of $39,150,000, less offering costs.
The December 2015 Offering was completed on a “blind-pool” basis, meaning there were no properties identified for
acquisition at the time of the offering. The net proceeds from the December 2015 Offering were used to fund the
purchase price of PURE Estates at TPC and partially fund the purchase price of PURE View at TPC, both of which
were acquired on March 1, 2016, subsequent to Pure Multi’s December 31, 2015 year end (see Section
VI – “Subsequent Events”).
17 Pure Multi-Family REIT LP
MD&A – December 31, 2015
OUTLOOK
Pure Multi’s strategy is to acquire a high-quality apartment portfolio located in the strongest growth markets within
the U.S. Sunbelt region. A judicious use of mortgage financing results in a conservative balance sheet that boasts one
of the longest average mortgage terms in the sector at 9.4 years, with an average mortgage interest rate of 3.72%, at
the end of 2015.
Job and population growth are fundamental drivers of apartment demand and our core markets of DFW, San Antonio
and Phoenix continue to project robust growth rates in both categories for the coming years. Although Houston has
recently suffered an economic slowdown due to the collapse of oil prices, our two assets held within the Greater
Houston market have been significantly insulated from this and continue to generate very solid rental rate growth, as
they are located in areas that do not have significant direct exposure to oil and gas related industries.
Pure Multi has a particular focus on asset selection that involves choosing assets that include unique features that
inherently create a barrier-to-entry from competition, either in their unique in-fill locations, or through other locational
attributes such as golf course frontages, large water features, or expansive views of neighbouring nature preserves.
Such attention to detail on asset selection pays dividends in terms of top-line revenue growth and reduced tenant
turnover.
Our diligent and active management style includes re-positioning some assets through value-add initiatives and
ultimately renewing our portfolio over time to harvest the profits of such value-add programs through the profitable
divesting of non-core holdings in order to re-invest such capital into newer, higher-quality, assets thus effecting our
urban-renewal approach to our overall portfolio asset management.
Going forward we intend to continue our active management of Pure Multi through executing more value-add
initiatives and improving the quality of our portfolio to enhance unitholder value. Our intention is to increase our
portfolio holdings in our current existing strong growth markets, as well as to expand our platform operations to
include additional markets that offer similar compelling demand drivers, which are highly beneficial to apartment
ownership. With the robust pipeline of high-quality apartment properties available for sale in these markets, we
believe Pure Multi is well positioned to continue its strong growth over the coming years, thus enhancing unitholder
value even further.
SECTION II
RESULTS OF OPERATIONS RECONCILIATION
“Pure Multi’s interest” is a non-IFRS measure representing: (1) Pure Multi’s proportionate share of the financial
position and results of operations of its entire portfolio, taking into account the difference in accounting for joint
ventures using proportionate consolidation versus equity accounting; and (2) the accrual of property tax liability and
expense, on all portfolio investments, based on time period of ownership throughout the given reporting year. Pure
Multi’s interest does not have any standardized meaning prescribed by IFRS.
The following tables provide reconciliations from Pure Multi’s financial statements prepared in accordance with IFRS
to Pure Multi’s interest, as described above, for the affected current and comparative periods.
18 Pure Multi-Family REIT LP
MD&A – December 31, 2015
Reconciliation of Consolidated Statement of Income and Comprehensive Income to Statement of Income and
Comprehensive Income at Pure Multi’s Interest:
Year ended
December 31, 2015
($000s)
REVENUES
Rental
OPERATING EXPENSES
Insurance
Property management
Property taxes
Property operating expenses
NET RENTAL INCOME
NET FINANCE INCOME (EXPENSES)
Interest income
Interest expense
Distributions to subsidiary’s preferred
unitholders
NET OTHER INCOME (EXPENSES)
Other income
General and administrative
Fair value adjustments to investment
properties
Gain on disposal of investment properties
Franchise taxes
Consolidated(1)
IFRIC 21 Property Tax
Adjustment(2)
Pure Multi’s Interest(3)
$ 58,876
$
1,543
1,764
8,500
13,655
25,462
33,414
14
(15,998)
(16)
(16,000)
13
(914)
34,519
525
(378)
33,765
-
-
-
718
-
718
(718)
-
-
-
-
-
-
718
-
-
718
$ 58,876
1,543
1,764
9,218
13,655
26,180
32,696
14
(15,998)
(16)
(16,000)
13
(914)
35,237
525
(378)
34,483
NET INCOME AND COMPREHENSIVE
INCOME
$ 51,179
$
-
$ 51,179
Notes:
(1) Represents Pure Multi’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi’s annual pro-rated portion of property tax expense, on its entire portfolio, that is accounted for under
IFRIC 21.
(3) Represents Pure Multi’s interest, as described herein.
19
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Reconciliation of Consolidated Statement of Income and Comprehensive Income to Statement of Income and
Comprehensive Income at Pure Multi’s Interest:
Three months ended
December 31, 2015
($000s)
REVENUES
Rental
OPERATING EXPENSES
(RECOVERIES)
Insurance
Property management
Property taxes
Property operating expenses
NET RENTAL INCOME
NET FINANCE INCOME (EXPENSES)
Interest income
Interest expense
Distributions to subsidiary’s preferred
unitholders
NET OTHER INCOME (EXPENSES)
Other income
General and administrative
Fair value adjustments to investment
properties
IFRIC 21 fair value adjustment to
investment properties
Gain on disposal of investment properties
Franchise taxes
Consolidated(1)
IFRIC 21 Property Tax
Adjustment(2)
Pure Multi’s Interest(3)
$ 16,547
$
507
499
(66)
3,901
4,841
11,706
4
(3,981)
(4)
(3,981)
1
(278)
3,679
(1,912)
1,321
(121)
2,690
-
-
-
2,596
-
2,596
(2,596)
-
-
-
-
-
-
684
1,912
-
-
2,596
$ 16,547
507
499
2,530
3,901
7,437
9,110
4
(3,981)
(4)
(3,981)
1
(278)
4,363
-
1,321
(121)
5,286
NET INCOME AND COMPREHENSIVE
INCOME
$ 10,415
$
-
$ 10,415
Notes:
(1) Represents Pure Multi’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi’s annual pro-rated portion of property tax expense, on its entire portfolio, that is accounted for under
IFRIC 21.
(3) Represents Pure Multi’s interest, as described herein.
20
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Reconciliation of Consolidated Statement of Income and Comprehensive Income to Statement of Income and
Comprehensive Income at Pure Multi’s Interest:
Year ended
December 31, 2014
($000s)
REVENUES
Rental
OPERATING EXPENSES
Insurance
Property management
Property taxes
Property operating expenses
NET RENTAL INCOME
NET FINANCE INCOME
(EXPENSES)
Interest income
Interest expense
Distributions to subsidiary’s
preferred unitholders
NET OTHER INCOME
(EXPENSES)
Other income
General and administrative
Fair value adjustments to
investment properties
Loss on disposal of
investment property
Franchise taxes
SHARE OF PROFIT (LOSS)
OF EQUITY-ACCOUNTED
INVESTMENT
NET INCOME AND
COMPREHENSIVE INCOME
Consolidated(1)
Pure Multi’s Share of
Equity-Accounted
Investment(2)
IFRIC 21
Property Tax
Adjustment(3)
Pure Multi’s Interest(4)
$ 48,133
$
342
$
1,287
1,444
6,696
12,218
21,645
26,488
5
(10,343)
(16)
(10,354)
1
(771)
27,507
(235)
(329)
26,173
4
10
28
96
138
204
-
(589)
-
(589)
-
-
27
-
-
27
(358)
358
$ 41,949
$
-
$
-
-
-
580
-
580
(580)
-
-
-
-
-
-
580
-
-
580
-
-
$ 48,475
1,291
1,454
7,304
12,314
22,363
26,112
5
(10,932)
(16)
(10,943)
1
(771)
28,114
(235)
(329)
26,780
-
$ 41,949
Notes:
(1) Represents Pure Multi’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi’s proportionate share of revenues and expenses of its joint venture that is accounted for on the equity
basis of accounting.
(3) Represents Pure Multi’s annual pro-rated portion of property tax expense, on its entire portfolio, that is accounted for under
IFRIC 21.
(4) Represents Pure Multi’s interest, as described herein.
21
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Reconciliation of Consolidated Statement of Income and Comprehensive Income to Statement of Income and
Comprehensive Income at Pure Multi’s Interest:
Consolidated(1)
Pure Multi’s Share of
Equity-Accounted
Investment(2)
IFRIC 21
Property Tax
Adjustment(3)
Pure Multi’s Interest(4)
Three months ended
December 31, 2014
($000s)
REVENUES
Rental
OPERATING EXPENSES
(RECOVERIES)
Insurance
Property management
Property taxes
Property operating expenses
NET RENTAL INCOME
NET FINANCE INCOME
(EXPENSES)
Interest income
Interest expense
Distributions to subsidiary’s
preferred unitholders
NET OTHER INCOME
(EXPENSES)
Other income
General and administrative
Fair value adjustments to
investment properties
IFRIC 21 fair value
adjustment to investment
properties
Loss on disposal of
investment property
Franchise taxes
SHARE OF LOSS OF
EQUITY-ACCOUNTED
INVESTMENT
$ 13,996
$
395
420
(96)
3,566
4,285
9,711
1
(3,036)
(4)
(3,039)
1
(209)
14,790
(1,709)
(235)
(94)
12,544
-
-
-
-
(2)
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
-
-
-
2,051
-
2,051
(2,051)
-
-
-
-
-
-
342
1,709
-
-
2,051
-
-
$ 13,996
395
420
1,953
3,568
6,336
7,660
1
(3,036)
(4)
(3,039)
1
(209)
15,132
-
(235)
(94)
14,595
-
$ 19,216
NET INCOME AND
COMPREHENSIVE INCOME
$ 19,216
$
Notes:
(1) Represents Pure Multi’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi’s proportionate share of revenues and expenses of its joint venture that is accounted for on the equity
basis of accounting.
(3) Represents Pure Multi’s annual pro-rated portion of property tax expense, on its entire portfolio, that is accounted for under
IFRIC 21.
(4) Represents Pure Multi’s interest, as described herein.
22
Pure Multi-Family REIT LP
MD&A – December 31, 2015
RESULTS OF OPERATIONS
All of the information presented below relates to Pure Multi’s interest, unless noted otherwise.
Pure Multi’s interest
($000s, except per unit basis)
For the
year ended
December 31, 2015
For the
year ended
December 31, 2014
For the three
months ended
December 31, 2015
For the three
months ended
December 31, 2014
$
58,876
$
48,475
$
16,547
$
13,996
Revenues
Rental
Operating Expenses
Insurance
Property management
Property taxes
Property operating expenses
Net Rental Income
Net Finance Income (Expenses)
Interest income
Interest expense
Distributions to subsidiary’s
preferred unitholders
Other Income (Expenses)
Other income
General and administrative
Fair value adjustments to
investment properties
Gain (loss) on disposal of
investment properties
Franchise taxes
1,543
1,764
9,218
13,655
26,180
32,696
14
(15,998)
(16)
(16,000)
13
(914)
35,237
525
(378)
34,483
1,291
1,454
7,304
12,314
22,363
26,112
5
(10,932)
(16)
(10,943)
1
(771)
28,114
(235)
(329)
26,780
507
499
2,530
3,901
7,437
9,110
4
(3,981)
(4)
(3,981)
1
(278)
4,363
1,321
(121)
5,286
395
420
1,953
3,568
6,336
7,660
1
(3,036)
(4)
(3,039)
1
(209)
15,132
(235)
(94)
14,595
19,216
0.52
Net Income and Comprehensive
Income
$
51,179
Earnings per Class A unit – basic
$
1.22
$
$
41,949
$
10,415
1.35
$
0.23
$
$
Weighted average number of
Class A units – basic
39,761,071
29,512,727
43,429,172
34,834,824
Earnings per Class A unit – diluted
$
1.15
$
1.23
$
0.22
$
0.48
Weighted average number of
Class A units – diluted
Earnings per Class B unit – basic
and diluted
Weighted average number of
Class B units – basic and diluted
43,831,867
33,583,523
47,979,552
38,905,620
$
12.79
$
10.49
$
2.60
$
4.80
200,000
200,000
200,000
200,000
23
Pure Multi-Family REIT LP
MD&A – December 31, 2015
During the year ended December 31, 2015, based on Pure Multi’s interest, Pure Multi recorded rental revenue of
$58,875,799, net rental income of $32,695,784, fair value adjustments to investment properties of $35,237,335 and
net income of $51,179,380 (year ended December 31, 2014 - $48,474,655, $26,111,241, $28,114,209 and
$41,949,277, respectively). During the year ended December 31, 2015, based on Pure Multi’s interest, Pure Multi
incurred $913,588 of general and administrative expenses (year ended December 31, 2014 - $769,883), incurred
franchise tax expense of $378,175 (year ended December 31, 2014 - $329,145), and recorded a gain on disposal of
investment properties of $525,088 (year ended December 31, 2014 – loss on disposal of $235,421). The increase in
revenues, expenses and net income are primarily attributable to Pure Multi operating additional investment properties
during the year ended December 31, 2015, compared to the same period in the prior year, in addition to strong organic
rental revenue growth experienced from the investment properties operated during both periods.
Pure Multi’s loan to gross book value ratio decreased to 54.6% at December 31, 2015 (December 31, 2014 – 57.9%)
and its distribution payout ratio on Distributable Income was 84.8% for the year ended December 31, 2015 (year ended
December 31, 2014 – 82.4%). The decrease in the loan to gross book value ratio and increase in the distribution
payout ratio on Distributable Income, compared to prior periods, was primarily due to excess cash and cash equivalents
on the balance sheet during the current period compared to the same period in the prior year. For further clarity, Pure
Multi’s loan to gross book value ratio is defined as the ratio between Pure Multi’s overall borrowed money, including
the face amount outstanding of any convertible debentures, and the total book value of the assets plus accumulated
depreciation and amortization in respect of such assets. Pure Multi defines distribution payout ratio as the percentage
of Distributable Income that is paid out to unitholders (see “Distributable Income”). For additional information, see
“Liquidity and Capital Resources – Distributed Cash”.
Rental Revenue
Rental revenue from investment properties includes recoveries of specified operating expenses, in accordance with
the terms of the lease agreements.
Operating Expenses
Operating expenses include costs relating to such items as cleaning, building repairs and maintenance, property repairs
and maintenance, HVAC, property payroll, insurance, property taxes, utilities and property management fees among
other items. The following table illustrates certain operating expenses as a percentage of total operating expenses:
Pure Multi’s interest
Insurance
Property management
Property taxes
Property operating expenses
Finance Income
For the
year ended
December 31, 2015
5.9%
6.7%
35.2%
For the
year ended
December 31, 2014
5.8%
6.5%
32.7%
For the three
months ended
December 31, 2015
6.8%
6.7%
34.0%
For the three
months ended
December 31, 2014
6.2%
6.6%
30.8%
52.2%
100.0%
55.0%
100.0%
52.5%
100.0%
56.4%
100.0%
Finance income consists of interest income which was earned from bank deposits at Pure Multi and the property level.
Finance Expenses
Finance expenses consist of interest expense and distributions to subsidiary’s preferred unitholders (see “Financial
Condition – Preferred Units of Subsidiary”). Pure Multi declared distributions in the amount of $15,625 to the
subsidiary’s preferred unitholders during the year ended December 31, 2015 (year ended December 31, 2014 -
$15,625).
24
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Interest Expense
Interest expense consists of mortgage interest, mortgage prepayment expense, convertible debenture interest, credit
facility interest, amortization of transaction costs, amortization of mark-to-market mortgage adjustment and accretion
of convertible debentures. On September 9, 2015, Pure Multi obtained new mortgage financing on Prairie Creek
Villas and incurred a mortgage prepayment expense of $5,188,836, related to paying off its prior mortgage. This
prepayment expense was partially offset by the write-off of the unamortized portion of the mark-to-market mortgage
adjustment in the amount of $2,737,202 on the same date.
The weighted average interest rate on the mortgages, based on Pure Multi’s interest, is 3.72% per annum as at
December 31, 2015 (December 31, 2014 – 3.86%) and the mortgages mature between 2018 and 2030 with a weighted
average mortgage term of 9.4 years remaining (December 31, 2014 – 6.8 years remaining). Pure Multi intends to
refinance any mortgages which mature within six months of the maturity date.
General and Administrative Expenses
General and administrative expenses are primarily comprised of directors’ fees, directors’ and officers’ liability
insurance, professional fees, legal fees, filing fees, and administrative expenses. Professional fees include auditing
and tax fees. Administrative expenses include US REIT compliance expenditures, investor relations expenses and
bank charges. For the year ended December 31, 2015, total general and administrative expenses amounted to 1.6%
of rental revenue (year ended December 31, 2014 – 1.6%). Pursuant to the Asset Management Agreement with the
Managing GP, as described under “Related Party Transactions”, Pure Multi will not compensate the Managing GP for
its services, which include providing asset management, administrative and reporting services. The Asset
Management Agreement also requires the Managing GP to provide Pure Multi with support services consisting of
office space and equipment and the necessary clerical and secretarial personnel for the administration of its day-to-
day activities, at no cost.
The following table illustrates corporate expenses as a percentage of overall general and administrative expenses:
Pure Multi’s interest
Insurance
Professional fees
Legal and filing fees
Director’s fees
Administrative expenses
G&A expense as a percentage
of rental revenue
Other Income (Expenses)
For the
year ended
December 31, 2015
4.8%
32.6%
15.6%
23.0%
24.0%
For the
year ended
December 31, 2014
4.4%
43.6%
17.3%
12.6%
22.1%
For the three
months ended
December 31, 2015
4.8%
22.2%
12.5%
44.5%
16.0%
For the three
months ended
December 31, 2014
4.8%
48.6%
18.7%
11.6%
16.3%
100.0%
1.6%
100.0%
1.6%
100.0%
1.7%
100.0%
1.5%
Other income (expenses) results from transactions in foreign currency entered into by Pure Multi, as a small number
of transactions occur in Canadian dollars while cash and cash equivalents are held in United States dollars.
25
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Fair Value Adjustments to Investment Properties
Pure Multi revalues its investment properties at fair value on each reporting date and records the fair value adjustments
as an income or expense item. For the year ended December 31, 2015, based on Pure Multi’s interest, Pure Multi
recorded an increase in fair value of its investment properties of $35,237,335 (year ended December 31, 2014 -
$28,114,209). The weighted average capitalization rate of the investment properties at December 31, 2015, based on
Pure Multi’s interest, was 5.50% (December 31, 2014 – 5.90%).
Gain (Loss) on Disposal of Investment Properties
During the year ended December 31, 2015, Pure Multi sold Sunset Point, Oakchase and Windsong for a combined
sales price of $67,800,000. Pure Multi recorded a gain on disposal of the investment properties in the amount of
$525,088 (year ended December 31, 2014 – loss on disposal of $235,421). The gain or loss on disposal is calculated
by taking the difference between the fair value of each investment property and its selling price, less any disposition
costs associated with sale of the properties.
Income Taxes
Pure Multi is not subject to tax under Part I of the Income Tax Act (Canada) (the “Tax Act”). Each partner
(or “unitholder”) of Pure Multi is required to include in computing the partner’s income for a particular taxation year
the partner’s share of the income or loss of Pure Multi for its fiscal year ending in or on the partner’s taxation year-
end, whether or not any of that income or loss is distributed to the partner in the taxation year. Accordingly, no
provision has been made for Canadian income taxes under Part I of the Tax Act.
Franchise Taxes
Texas Franchise Tax applicable to Pure Multi, for its investment properties operated in Texas during the year ended
December 31, 2015, is equal to 0.95% of the lesser of: (i) 70% of total revenue; (ii) 100% of total revenue less cost of
goods sold; (iii) 100% of total revenue less compensation expense; or (iv) 100% of total revenue less $1 million. Pure
Multi recorded a provision for Texas Franchise Tax of $378,175 for the year ended December 31, 2015 (year ended
December 31, 2014 - $329,145).
Offering Costs
Offering costs are the costs incurred by Pure Multi that relate to the issuance of equity instruments, which are included
in the statement of partners’ capital. During the year ended December 31, 2015, Pure Multi incurred offering costs of
$3,515,918 (year ended December 31, 2014 - $2,188,921).
Distributions to Limited Partners
Pure Multi declared distributions in the amount of $15,019,778 to Class A unitholders and $790,515 to Class B
unitholders during the year ended December 31, 2015 (year ended December 31, 2014 - $11,322,956 and $595,945,
respectively).
DISTRIBUTABLE INCOME
Pure Multi uses Distributable Income (“DI”) to measure its ability to earn and distribute cash to unitholders. DI is a
non-IFRS measurement, using Pure Multi’s interest, as described herein, and should not be construed as an alternative
to net earnings determined in accordance with IFRS as an indicator of Pure Multi’s performance. DI as computed by
Pure Multi may differ from similar computations as reported by other similar business entities and, accordingly, may
not be comparable to DI as reported by such business entities. DI does not have any standardized meaning prescribed
by IFRS. Management calculates DI by adding to or deducting the following items from net cash from operating
activities: non-cash working capital items, IFRIC 21 adjustments, interest income, interest expense, mortgage
prepayment expense, distributions to preferred unitholders and preferred units of subsidiary offering costs.
26 Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pure Multi’s interest
($000s, except per unit basis)
For the
year ended
December 31,
2015
For the
year ended
December 31,
2014
For the three
months ended
December 31,
2015
For the three
months ended
December 31,
2014
Net cash provided from operating activities
$ 29,155
$
26,902
$
6,159
$
7,545
Adjustment:
Changes in non-cash operating working capital
IFRIC 21 property tax liability adjustment, net
Interest income
Interest expense
Mortgage prepayment expense
Distributions to subsidiary’s preferred
unitholders
Distributable Income
Class A units
Class B units
Distributions to Unitholders
Class A units
Class B units
Total distributions paid
Total distributions paid as a % of Distributable
Income
Weighted average number of units (000s)
Class A units
Class B units
Diluted weighted average number of units (000s)
Class A units
Class B units
Basic DI per unit
Class A units
Class B units
Diluted DI per unit
Class A units
Class B units
Distributions paid per weighted average unit
Class A units
Class B units
2,262
-
14
(17,952)
5,189
(16)
$ 18,652
$
17,719
933
$ 15,020
790
$ 15,810
$
$
(1,889)
-
5
(10,535)
-
(16)
14,467
13,744
723
11,323
596
11,919
4,465
(1,912)
4
(3,753)
-
(4)
$
4,959
$
4,711
248
$
4,144
218
$
4,362
$
$
1,522
(1,709)
1
(2,942)
-
(4)
4,413
4,192
221
3,266
172
3,438
84.8%
82.4%
88.0%
77.9%
$
39,761
200
43,832
200
0.45
4.66
0.44
4.66
0.38
3.95
$
29,513
200
33,584
200
0.47
3.62
0.45
3.62
0.38
2.98
$
43,429
200
47,980
200
0.11
1.24
0.11
1.24
0.10
1.09
$
34,835
200
38,906
200
0.12
1.10
0.12
1.10
0.09
0.86
Pure Multi may distribute to unitholders on each distribution date such percentage of the DI of Pure Multi for the
month immediately preceding the month in which the distribution date falls, as the board of directors of the Governing
GP may determine at their discretion. At the rate of current monthly distributions, on an annualized basis, unitholders
would receive $0.375 per Class A Unit. Monthly distributions will be paid on the distribution date to unitholders of
record on the last business day of such month. See “Financial Condition – Partners’ Capital”.
27
Pure Multi-Family REIT LP
MD&A – December 31, 2015
The board of directors of the Governing GP looks beyond quarter-to-quarter fluctuations in working capital when
making decisions regarding monthly distributions. As a result, management believes that the measure of DI, which
excludes the impact of changes in non-cash working capital, is a better measure for determining operating
performance. Management believes that the calculation of Standardized Distributable Cash, defined as cash flow
from operations, distorts Pure Multi’s quarter-to-quarter distributable cash and payout ratios, as non-cash operating
working capital fluctuates.
For the purpose of this MD&A, management defines “Diluted DI per unit” as Distributable Income divided by the
diluted weighted average number of units outstanding.
STANDARDIZED DISTRIBUTABLE CASH
The following is a reconciliation of Pure Multi’s DI to standardized distributable cash.
Pure Multi’s interest
($000s)
Distributable income
IFRIC 21 property tax liability adjustment, net
Interest income
Interest expense
Mortgage prepayment expense
Distributions to subsidiary’s preferred
unitholders
(Increase) decrease in amounts receivable
Increase in prepaid expenses
Increase (decrease) in rental deposits
Increase (decrease) in unearned revenue
Increase (decrease) in accounts payable and
accrued liabilities
Standardized Distributable Cash
(net cash from operating activities)
SEGMENTED INFORMATION
$
For the
year ended
December 31,
2015
18,652
-
(14)
17,952
(5,189)
$
For the
year ended
December 31,
2014
14,467
-
(5)
10,535
-
$
For the three
months ended
December 31,
2015
4,959
1,912
(4)
3,753
-
$
For the three
months ended
December 31,
2014
4,413
1,709
(1)
2,942
-
16
(325)
(369)
202
(94)
(1,676)
16
(453)
(129)
235
247
1,989
4
315
(451)
(90)
233
(4,472)
4
(429)
(365)
(12)
252
(968)
$
29,155
$
26,902
$
6,159
$
7,545
Pure Multi currently operates in one business segment, indirectly owning and operating of multifamily apartment
properties in the Sunbelt region in the United States. The primary format for segment reporting is based on
geographical region and is consistent with the internal reporting provided to the chief operating decision-maker,
determined to be the general partners.
FINANCIAL CONDITION
Assets
Investment Properties
Investment properties are stated at fair value. Fair value adjustments to investment properties arising from changes in
fair values are included in the statement of income and comprehensive income in the period which they arise.
The investment properties are pledged as security against the mortgages payable.
28 Pure Multi-Family REIT LP
MD&A – December 31, 2015
Prepaid Expenses
Prepaid expenses primarily consist of insurance and utility deposits.
Mortgage Reserve Fund
The mortgage reserve fund consists of cash on deposit requested by the lenders to be retained in escrow to pay for any
repairs to the properties and certain costs. These funds will be released to pay the respective obligations once certain
conditions are met, such as completion of repairs. As at December 31, 2015, the term for the current mortgage reserve
fund is less than 12 months. The amortized cost of the mortgage reserve fund is $6,570,597, based on Pure Multi’s
interest, as at December 31, 2015, (December 31, 2014 - $6,208,641).
Liabilities
The LP Agreement limits the indebtedness of Pure Multi to a maximum of 70% of the gross book value. The gross
book value is defined as the total book value of the assets plus accumulated depreciation and amortization in respect
of such assets. The indebtedness is 54.6% of the gross book value as at December 31, 2015 (December 31, 2014 –
57.9%).
Mortgages Payable
The mortgages bear interest at a weighted average effective rate of 3.72%, based on Pure Multi’s interest, as at
December 31, 2015 (December 31, 2014 – 3.86%) and mature between 2018 and 2030. The scheduled principal
payments, principal maturities and weighted average effective rate are as follows:
Pure Multi’s interest
December 31, 2015
($000s)
Weighted Average
Effective Rate
(on expiry)
Scheduled
Principal
Repayments
Principal
Maturities
Total
Repayments
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Unamortized mortgage transaction costs
-
-
3.51%
3.29%
-
3.26%
3.51%
4.12%
-
-
$
1,871
$
2,511
3,100
3,749
4,505
4,541
4,456
4,405
4,117
4,287
-
-
14,615
60,550
-
37,060
13,680
33,349
-
-
3.92%
15,363
144,916
3.72%
$
52,905
$ 304,170
$
1,871
2,511
17,715
64,299
4,505
41,601
18,136
37,754
4,117
4,287
160,279
357,075
(2,873)
$ 354,202
29
Pure Multi-Family REIT LP
MD&A – December 31, 2015
The following chart shows the remaining scheduled principal payments and principal maturities of the mortgages due
within the next 10 years and thereafter:
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
44.9%
18.0%
0.5%
0.7%
5.0%
2016
2018
Maturity
1.3%
2020
11.7%
10.5%
5.0%
1.2%
1.2%
2022
Scheduled Principal
2024
Thereafter
Preferred Units of Subsidiary
During the year ended December 31, 2013, the US REIT issued 125 preferred units at $1,000 per preferred unit for
gross proceeds of $125,000. On consolidation, the preferred units of the US REIT are reflected as a liability of Pure
Multi.
The preferred units are non-voting preferred units. Unitholders holding preferred units are entitled to receive dividends
from the US REIT at a per annum rate equal to 12.5%, payable on June 30 and December 31 of each year. Unitholders
holding preferred units will be allocated such return in priority to any allocations or distributions to all other classes
and series of units of the US REIT. However, after payment of such return to unitholders holding preferred units,
preferred unitholders are not otherwise entitled to share in the income of the US REIT.
The US REIT may redeem the preferred units at any time, for a price equal to $1,000 per preferred unit, plus accrued
and unpaid distributions.
Due to the fixed distributions and preferred treatment for preferred units, they meet the definition of a liability. In
addition, the board of directors of the Governing GP does not expect to redeem any preferred units within the next
year. Thus, the preferred units are classified as non-current liabilities.
30
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Convertible Debentures
On August 7, 2013, Pure Multi issued 23,000 6.5% convertible unsecured subordinated debentures (each, a “6.5%
convertible debenture”) at a price of $1,000 per 6.5% convertible debenture, for gross proceeds of $23,000,000. The
6.5% convertible debentures mature on September 30, 2020 and are convertible at the holder’s option at any time into
Class A Units at a conversion price of $5.65 per Class A Unit, in accordance with the terms of the trust indenture
dated August 7, 2013. On or after September 30, 2016, but prior to September 30, 2018, the 6.5% convertible
debentures may be redeemed by Pure Multi, in whole or in part, at a price equal to their principal amount plus accrued
and unpaid interest thereon, provided the weighted average trading price of the Class A Units for the 20 consecutive
trading days, ending on the fifth trading day immediately preceding the date on which notice of redemption is given,
is at least 125% of the conversion price. After September 30, 2018, the 6.5% convertible debentures may be redeemed
by Pure Multi at any time. During the year ended December 31, 2015, none of the 6.5% convertible debentures were
converted into Class A Units. At December 31, 2015, $23,000,000 of the face value of the 6.5% convertible
debentures was outstanding (December 31, 2014 - $23,000,000).
The following summarizes the face and carrying values of the 6.5% convertible debentures at December 31, 2015:
Balance as at December 31, 2014
Amortization of transaction costs
Accretion of liability component
Convertible
Debentures
Face Value
$ 23,000,000
-
-
Liability
Component
Carrying Value
$ 19,876,109
155,350
288,431
Equity
Component
Carrying Value
$ 1,985,429
-
-
Balance as at December 31, 2015
$ 23,000,000
$ 20,319,890
$ 1,985,429
Credit Facility
On July 19, 2013, Pure Multi established a revolving credit facility with a lender in the amount of $9,900,000. On
December 11, 2015, Pure Multi paid off its outstanding balance on the credit facility and extinguished the facility on
the same date. The revolving credit facility was interest bearing at a variable interest rate based at 2.00% plus the
London Interbank Offered Rate (“LIBOR”). The revolving credit facility was secured by a charge in respect of
Windsong Apartments prior to its extinguishment.
Partners’ Capital
The capital of Pure Multi consists of an unlimited number of Class A Units and Class B Units and the interest held by
the Governing GP. The Governing GP has made a capital contribution of $20 to Pure Multi and has no further
obligation to contribute capital.
On May 30, 2012, the Managing GP subscribed for 200,000 Class B Units of Pure Multi, at a price of $5.00 per Class
B Unit, for gross proceeds to Pure Multi of $1,000,000, which entitles the Class B Unitholders, initially, to a 5%
interest in Pure Multi. As of the date hereof, Pure Multi has 200,000 Class B Units outstanding.
From the date of formation on May 8, 2012 to December 31, 2014, Pure Multi issued 34,834,824 Class A Units for
gross proceeds of $171,446,849, less offering costs. On May 8, 2015, Pure Multi completed a public offering of
6,900,000 Class A Units, on a bought deal basis, at a price of $5.10 per Class A Unit for gross proceeds of $35,190,000,
less offering costs. On October 27, 2015, 55,000 Class A Unit purchase warrants (each, a “Warrant”) were exercised
for 55,000 Class A Units, at an exercise price of $5.15, for gross proceeds of $283,250. Pure Multi issued the 55,000
Class A Units from treasury. On December 11, 2015, Pure Multi completed a public offering of 7,250,000 Class A
Units, on a bought deal basis, at a price of $5.40 per Class A Unit, for gross proceeds of $39,150,000, less offering
costs.
31 Pure Multi-Family REIT LP
MD&A – December 31, 2015
As at December 31, 2015, Pure Multi had 49,039,824 Class A Units, 200,000 Class B Units and 2,142,912 Warrants
outstanding.
The capital of Pure Multi is divided into Class A Units and Class B Units. The Class A Units are the subject of the
public offerings described in Pure Multi’s prospectuses dated July 3, 2012, October 12, 2012, May 1, 2013, July 22,
2014, May 4, 2015 and December 7, 2015, which are available on SEDAR at www.sedar.com. The Class B Units
were subscribed for by the Managing GP on May 30, 2012. Except as set out in the LP Agreement, no Class A Unit
or Class B Unit has any preference or priority over another.
The Class A Units will share in a 95% equity interest in all distributions and all net assets of Pure Multi and the
Managing GP, as the holder of the Class B Units, will share in a 5% equity interest in all distributions and all net
assets of Pure Multi. These respective interests, referred to as the “Class A Unit Percentage Interest” and “Class B
Unit Percentage Interest”, will remain fixed, notwithstanding the issue of further Class A Units, until the occurrence
of a Determination Event, as described below.
All distributions will be made to the holders of the Class A Units and the Class B Units in accordance with the Class
A Unit Percentage Interest and Class B Unit Percentage Interest, respectively. As described in the LP Agreement,
until a Determination Event occurs, distributions from Pure Multi will generally be made 95% to the Class A Units
and 5% to the Class B Units.
Subject to the terms of the LP Agreement, the Class B Unitholders as a class are entitled to convert some or all of their
Class B Units into Class A Units based on the Specified Ratio (as defined in the LP Agreement). Upon the Class B
Unitholders exercising their Conversion Rights, they will own that number of Class A Units which is equal to the
Class B Unit Percentage Interest (initially 5%) of all Class A Units outstanding after such conversion. The Class B
Unit Percentage Interest will remain fixed at 5% notwithstanding the issue of further Class A Units, until the
occurrence of a Determination Event. Following the occurrence of a Determination Event, the number of Class A
Units to which the Class B Unitholder is entitled upon exercising Conversion Rights becomes fixed, and future
issuances of Class A Units will result in a decline in the Class B Unit Percentage Interest. A Determination Event is
the earliest to occur of the following: (a) Pure Multi’s market capitalization exceeding $300,000,000 for a period of
10 consecutive trading days; (b) an arm’s length take-over bid being made for the Class A Units, provided that not
less than 51% of the Class A Units not held by the offer or are taken-up in such bid; and (c) substantially all of the
assets of Pure Multi being sold or Pure Multi being liquidated.
The Conversion Rights may be exercised by the Managing GP at any time provided that:
(a) Pure Multi is legally entitled to comply with its obligations in connection with the exercise of the Conversion
Rights; and
(b)
the Class B Unitholder who exercises the Conversion Rights complies with all applicable securities laws.
Upon the exercise of the Conversion Rights, the Class B Unitholders will receive that number of Class A Units which
is equal to the Specified Ratio multiplied by the number of outstanding Class B Units. As such, pursuant to the terms
of the LP Agreement, the Class B Unitholders will receive such number of Class A Units representing the same Class
B Unit Percentage Interest in the net assets of Pure Multi as was previously designated in the form of Class B Units.
Subject to applicable laws, Pure Multi will redesignate all the interests of Class B Unitholders into Class A Units at
the Specified Ratio effective as of the date that Pure Multi receives a notice of exercise of the Conversion Rights.
Upon such occurrence (and the exercise of the Conversion Rights (as defined in the LP Agreement) by the Class B
Unitholders, the interests of Class B Unitholders will be redesignated as Class A Units. The Class B Units will not be
required to be redeemed or cancelled.
32
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pursuant to the LP Agreement, the Managing GP or any affiliate or associate of the Managing GP which is then the
Class B Unitholder, has agreed that it will not dispose of more than one-third of the Class A Units received by it upon
the conversion of the Class B Units in each consecutive twelve month period ending after the first anniversary of the
earlier of: (i) the date a Determination Event occurs; and (ii) the date upon which the conversion is completed. This
limitation will not apply where the Conversion Rights have been exercised in connection with a take-over bid or a sale
of substantially all of Pure Multi’s assets.
LIQUIDITY AND CAPITAL RESOURCES
Funds from Operations and Adjusted Funds from Operations
Funds from operations (“FFO”) is a non-IFRS measure, using Pure Multi’s interest as described herein, and should
not be construed as an alternative to net earnings or cash flows, as applicable, determined in accordance with IFRS.
However, FFO is an operating performance measure which is widely used by the real estate industry and Pure Multi
has calculated FFO in accordance with the recommendations of the Real Property Association of Canada
(“REALpac”). Pure Multi’s method of calculating FFO may differ from other companies and accordingly may not be
comparable to similar measures presented by other companies.
The use of FFO, combined with the required IFRS presentations, has been presented for the purpose of improving the
understanding of operating results in the real estate industry by the investing public and in making comparisons of the
companies operating results more meaningful.
As FFO excludes fair value adjustments, amortization, IFRIC 21 adjustments, mortgage prepayment expenses, and
gains or losses from property dispositions, it provides a performance measure that, when compared period over period,
reflects the impact on operations of trends in occupancy levels, rental rates, operating costs and realty taxes; acquisition
activities; and interest costs, and provides a perspective of financial performance that is not immediately apparent
from net earnings determined in accordance with IFRS.
FFO is a widely accepted supplemental measure of financial performance for real estate entities; however, it does not
represent amounts available for capital programs, debt service obligations, commitments or uncertainties. FFO should
not be interpreted as an indicator of cash generated from operating activities and is not indicative of cash available to
fund operating expenditures, or for the payment of cash distributions. FFO is simply one of several measures of
operating performance.
Adjusted funds from operations (“AFFO”) is also a non-IFRS measure, using Pure Multi’s interest as described herein,
and should not be construed as an alternative to net earnings or cash flows, as applicable, determined in accordance
with IFRS. However, AFFO is widely accepted as a performance measurement tool in the real estate industry. AFFO
is calculated by adjusting the FFO for non-cash compensation items, accretion of debentures, and maintenance capital
expenditures. Pure Multi’s method of calculating AFFO may differ from other companies and accordingly may not
be comparable to similar measures presented by other companies.
33 Pure Multi-Family REIT LP
MD&A – December 31, 2015
The following table provides the analysis of Pure Multi’s FFO and AFFO performance:
Pure Multi’s interest
($000s, except per unit basis)
For the
year ended
December 31,
2015
For the
year ended
December 31,
2014
For the three
months ended
December 31,
2015
For the three
months ended
December 31,
2014
Net income and comprehensive income
$ 51,179
$
41,949
$ 10,415
$ 19,216
Adjustment:
Amortization of transaction costs
Amortization of mark to market mortgage
adjustments
Fair value adjustment to investment properties
(Gain) loss on disposal of investment properties
Property tax adjustments on acquisition or sale
Mortgage prepayment expense
IFRIC 21 fair value adjustment to investment
properties
IFRIC 21 property tax liability adjustment, net
Funds from operations
Maintenance capital provision (1)
Accretion of convertible debentures
967
1,219
(3,209)
(34,519)
(525)
(718)
5,189
-
-
(890)
(27,534)
235
(580)
-
-
-
154
-
(3,679)
(1,321)
(684)
-
1,912
(1,912)
200
(174)
(14,790)
235
(342)
-
1,709
(1,709)
$ 18,364
$ 14,399
$
4,885
$ 4,345
(1,289)
288
(1,187)
68
(352)
74
(333)
68
Adjusted funds from operations
$ 17,363
$ 13,280
$
4,607
$
4,080
Weighted average number of units (000s)
Class A units
Class B units
Diluted weighted average number of units (000s)
Class A units
Class B units
FFO per unit - Basic
Class A units
Class B units
FFO per unit - Diluted
Class A units
Class B units
Payout Ratio on FFO
AFFO per unit - Basic
Class A units
Class B units
AFFO per unit – Diluted
Class A units
Class B units
Payout Ratio on AFFO
39,761
200
43,832
200
0.44
4.59
0.44
4.59
86.1%
0.42
4.34
0.41
4.34
91.1%
$
$
$
$
29,513
200
33,584
200
43,429
200
47,980
200
34,835
200
38,906
200
$
0.46
$ 0.11
$
0.12
3.60
1.22
1.09
$
0.45
$ 0.11
$
0.12
3.60
82.8%
1.22
89.3%
1.09
79.1%
$
0.43
$ 0.10
$
0.11
3.32
1.15
1.02
$
0.42
$ 0.10
$
0.11
3.32
89.8%
1.15
94.7%
1.02
84.3%
34
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Notes:
(1) Based on an industry estimate of $300 per residential unit per year. This maintenance capital provision is estimated to be
incurred on the property portfolio as to sustain its current revenue rental income-generating potential into future periods. Pure
Multi does not include capital expenditures that increase the value of the current rental revenue, or initial capital expenditures
that are required to be performed upon acquisition of an investment property.
The following is a reconciliation of the Pure Multi’s AFFO and FFO to cash provided by operations:
Pure Multi’s interest
($000s)
Adjusted funds from operations
Maintenance capital provision
Accretion of convertible debentures
Funds from operations
(Increase) decrease in accounts receivable
Increase in prepaid expenses
Increase (decrease) in rental deposits
Increase (decrease) in accounts payable and
accrued liabilities
Increase (decrease) in unearned revenue
IFRIC 21 property tax liability adjustment, net
Accretion of convertible debentures
Interest income
Interest expense
Mortgage prepayment expense
Distributions to subsidiary’s preferred unitholders
For the
year ended
December 31,
2015
$ 17,363
1,289
(288)
18,364
(325)
(369)
202
$
For the
year ended
December 31,
2014
13,280
1,187
(68)
14,399
(453)
(129)
235
For the three
months ended
December 31,
2015
$ 4,607
352
(74)
4,885
315
(451)
(90)
For the three
months ended
December 31,
2014
$ 4,080
333
(68)
4,345
(429)
(365)
(12)
(1,676)
(94)
-
288
(14)
17,952
(5,189)
16
1,989
247
-
68
(5)
10,535
-
16
(4,472)
233
1,912
74
(4)
3,753
-
4
(968)
252
1,709
68
(1)
2,942
-
4
Net cash provided from operating activities
$ 29,155
$ 26,902
$ 6,159
$
7,545
Capital Resources
Cash generated by investment properties represents the primary source of funds to fund total distributions to
unitholders of $15,810,293 for the year ended December 31, 2015 (year ended December 31, 2014 - $11,918,901).
There are no significant working capital requirements that currently exist and there are no pending items that may
affect liquidity. There are no legal or practical restrictions on the ability of Pure Multi’s properties to transfer funds
to Pure Multi.
Proceeds from the issuance of Class A Units, Warrants, Convertible Debentures and conventional mortgage financing
have been used mainly to fund property acquisitions. Pure Multi intends to refinance any mortgages which mature
within six months of maturity.
Management expects to be able to meet all of Pure Multi’s ongoing obligations and to finance future growth through
cash generated by operations, the issuance of securities and by using conventional mortgages. Pure Multi is not in
default or arrears on any of its obligations including distribution payments, interest or principal payments on debt.
35 Pure Multi-Family REIT LP
MD&A – December 31, 2015
Distributed Cash
In accordance with National Instrument 41-201, Pure Multi is required to provide additional disclosure relating to
cash distributions.
For the three months and year ended December 31, 2015, cash provided from operating activities, less interest paid
(“adjusted cash provided from (used by) operating activities”), was less than cash distributions declared due to the
mortgage prepayment expense, a non-recurring expense, in the amount of $5,188,836, incurred by Pure Multi on the
mortgage refinancing of Prairie Creek Villas and the timing of property tax payable amounts paid during the three
months ended December 31, 2015. For the three months and year ended December 31, 2014, adjusted cash provided
from (used by) operating activities, was more than cash distributions declared. Management expects that adjusted
cash provided from operating activities, after adjusting for non-recurring items, will exceed cash distributions
declared.
Pure Multi’s interest
($000s)
Cash provided from operating activities
Less interest paid
Adjusted cash provided from operating activities
Actual cash distributions declared
Surplus (shortfall) of cash from (used by) operating
activities over cash distributions declared
For the
year ended
December 31,
2015
29,155
(17,674)
11,481
15,810
$
For the
year ended
December 31,
2014
26,902
(10,605)
16,297
11,919
$
For the three
months ended
December 31,
2015
6,159
(3,118)
3,041
4,362
$
For the three
months ended
December 31,
2014
7,545
(2,576)
4,969
3,438
$
$
(4,329)
$
4,378
$
(1,321)
$
1,531
For the three months and years ended December 31, 2015 and 2014, net income was more than cash distributions
declared. Management expects net income to continue to exceed cash distributions declared.
Pure Multi’s interest
($000s)
Net income
Actual cash distributions declared
Surplus of net income over cash distributions
declared
CAPITAL STRUCTURE
For the
year ended
December 31,
2015
51,179
15,810
$
For the
year ended
December 31,
2014
41,949
11,919
$
For the three
months ended
December 31,
2015
10,415
4,362
$
For the three
months ended
December 31,
2014
19,216
3,438
$
$
35,369
$
30,030
$
6,053
$
15,778
Pure Multi defines capital as the aggregate of partners’ capital, preferred units of subsidiary and long term debt. Pure
Multi’s objectives in managing capital are to maintain a level of capital that complies with investment and debt
restrictions pursuant to the initial offering prospectus; complies with existing debt covenants, if any; funds its business
strategies; and builds long-term unitholders’ value. Pure Multi’s capital structure is approved by the board of directors
of the Governing GP through its periodic reviews.
36
Pure Multi-Family REIT LP
MD&A – December 31, 2015
The LP Agreement provides for a maximum indebtedness (or “loan”) level of up to 70% of the gross book value. The
term “indebtedness” means any obligation of Pure Multi for borrowed money (including the face amount outstanding
under any convertible debentures and any outstanding liabilities of Pure Multi arising from the issuance of
subordinated notes but excluding any premium in respect of indebtedness assumed by Pure Multi for which Pure Multi
has the benefit of an interest rate subsidy), but excludes trade accounts payable, distributions payable to unitholders,
preferred units of subsidiary, accrued liabilities arising in the ordinary course of business and short-term acquisition
credit facilities. The LP Agreement defines “gross book value” as the book value of the assets of Pure Multi plus the
amount of accumulated depreciation and amortization in respect of such assets (and related intangible assets), the
amount of future income tax liability arising out of indirect acquisitions and excluding the amount of any receivable
reflecting interest rate subsidies on any debt assumed by Pure Multi. Pure Multi’s indebtedness is 54.6% as at
December 31, 2015 (December 31, 2014 – 57.9%).
Maintaining a relatively low indebtedness ratio is important in current economic conditions because it allows Pure
Multi to access additional financing, if necessary.
The LP Agreement allows the board of directors of the Governing GP, at their discretion, to allocate to the unitholders
in each year all or a portion of Pure Multi’s income for the year, as calculated in accordance with the Tax Act, after
all permitted deductions under the Tax Act have been taken. The board of directors of the Governing GP also reviews
the cash distribution paid to the unitholders on a regular basis. The total distributions declared to Class A unitholders
during the year ended December 31, 2015 was $15,019,778 (year ended December 31, 2014 - $11,322,956). The total
distributions declared to Class B unitholders during the year ended December 31, 2015 was $790,515 (year ended
December 31, 2014 - $595,945).
The capital structure consisted of the following components at December 31, 2015 and 2014:
Pure Multi’s interest
($000s)
Capital
Mortgages payable
Convertible debentures
Preferred units of subsidiary
Partners’ capital
Total Capital
December 31, 2015
December 31, 2014
Change
$ 354,202
20,320
125
304,274
$ 678,921
$ 256,735
19,876
125
197,798
$ 474,534
$
97,467
444
-
106,476
$ 204,387
The total capital of Pure Multi increased from December 31, 2014 to December 31, 2015 primarily due to the May
2015 Offering and the December 2015 Offering, both of which increased partners’ capital, the new mortgages obtained
and net income earned from operations. This was partially offset by the repayment of mortgages payable and
distributions declared to the unitholders.
FINANCIAL INSTRUMENTS
For certain of Pure Multi’s financial instruments, including cash and cash equivalents, amounts receivable, mortgage
reserve fund, credit facility, and accounts payable and accrued liabilities, the carrying amounts approximate the fair
values due to the short-term nature of the instruments.
The fair values of the mortgages payable and preferred units of subsidiary have been calculated based on discounted
future cash flows using discount rates that reflect current market conditions for instruments having similar terms and
conditions. Discount rates are either provided by lenders or are observable in the open market. The fair value of the
convertible debentures has been calculated using quoted prices in active markets.
37 Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pure Multi’s interest
($000s)
Mortgages payable
Preferred units of subsidiary
Convertible debentures
December 31, 2015
Carrying
Amount
$ 354,202
125
20,320
Fair Value
$ 366,040
125
23,000
December 31, 2014
Carrying
Amount
$ 256,735
125
19,876
Fair Value
$ 262,023
125
22,885
OFF-BALANCE SHEET ITEMS
Pure Multi does not have any off-balance sheet items.
SECTION III
SUMMARY OF SELECTED ANNUAL INFORMATION
Pure Multi’s interest
($000s, except per unit basis)
Rental revenue
Net rental income
Net income and comprehensive income
Total assets
Total non-current assets
Total liabilities
Total non-current liabilities
Distributions
Per Class A Unit
Per Class B Unit
Basic net income per Class A Unit
Basic net income per Class B Unit
For the
year ended
December 31, 2015
For the
year ended
December 31, 2014
For the
year ended
December 31, 2013
$ 58,876
$ 48,475
$ 31,583
32,696
51,179
691,153
613,682
386,879
372,776
15,810
$ 0.38
$ 3.95
$ 1.22
$ 12.79
26,112
41,949
492,791
468,518
294,993
275,128
11,919
$
$
0.38
2.98
$
1.35
$ 10.49
16,357
14,202
351,007
337,603
231,214
215,279
8,371
0.37
2.09
$
$
$
$
0.62
3.55
Pure Multi’s total assets and liabilities have increased significantly during the year ended December 31, 2015 due to
investment property acquisitions and their related mortgages, the issuance of equity, and fair value increases of its
investment properties. As at December 31, 2015, Pure Multi held 14 investment properties comprising 4,437
residential units and 4,052,934 gross rentable square feet, compared to 14 investment properties with 4,308 residential
units and 3,830,279 gross rentable square feet as at December 31, 2014.
Total rental revenue from the investment properties totaled $58.9 million for the year ended December 31, 2015
compared to $48.5 million for the year ended December 31, 2014. This increase is reflective of the increase in the
number of days the investment properties were operating during 2015 compared to 2014, due to the timing of
acquisitions and dispositions, coupled with the organic growth in rental revenue achieved at the investment properties
operated during both periods.
38 Pure Multi-Family REIT LP
MD&A – December 31, 2015
SUMMARY OF QUARTERLY RESULTS
During the three months ended December 31, 2015, based on Pure Multi’s interest:
•
•
•
•
•
•
•
Assets increased to $691,152,766 from $654,498,958 as at September 30, 2015. This increase was primarily
due to the December 2015 Offering and the fair value adjustments to investment properties, and was partially
offset by the disposition of Windsong. As at December 31, 2015, Pure Multi had cash and cash equivalents
of $68,632,392 and investment properties of $613,681,875, compared to $17,483,232 and $629,037,708,
respectively, as at September 30, 2015.
Liabilities decreased to $386,878,540 from $393,863,005 as at September 30, 2015. This decrease was
primarily due to the repayment of a credit facility.
Partners’ capital increased to $304,274,226 from $260,635,953 as at September 30, 2015. This increase was
primarily due to the December 2015 Offering and the net income earned by Pure Multi during the period,
and was partially offset by the distributions declared to unitholders.
Pure Multi earned rental revenue of $16,547,369 from investment properties (three months ended December
31, 2014 - $13,995,547). These properties incurred operating expenses of $7,437,439, resulting in net rental
income of $9,109,930 during the three months ended December 31, 2015 (three months ended December 31,
2014 - $6,335,869 and $7,659,678, respectively). The significant increase in rental revenue, operating
expenses and net rental income was as a result of Pure Multi operating additional investment properties
throughout the current period compared to the comparative period.
Pure Multi incurred interest expense of $3,980,708 and distributions to subsidiary’s preferred unitholders of
$3,906 (three months ended December 31, 2014 - $3,035,975 and $3,906, respectively). This resulted in net
finance expenses of $3,980,477 during the three months ended December 31, 2015 (three months ended
December 31, 2014 - $3,038,989). The increases in net finance expenses was primarily due to the additional
mortgage interest costs during the period.
Pure Multi incurred general and administrative expenses of $277,740, fair value adjustments to investment
properties gain of $4,362,671, incurred franchise tax expense of $121,654 and gain on disposal of investment
properties of $1,321,039 (three months ended December 31, 2014 - $208,671, $15,132,158, $93,608 and a
loss on disposal of $235,421, respectively).
Pure Multi had net income of $10,414,868 (three months ended December 31, 2014 - $19,215,762), as a
result of the above transactions.
39
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pure Multi’s interest
Quarter ended
($000s, except per unit amounts)
Rental revenue
Operating expenses
Net rental income
Interest expense
General and administrative expenses
Fair value adjustments to investment
properties
Net income and comprehensive income
Basic net income per unit
Class A units
Class B units
Pure Multi’s interest
Quarter ended
($000s, except per unit amounts)
Rental revenue
Operating expenses
Net rental income
Interest expense
General and administrative expenses
Fair value adjustments to investment
properties
Net income and comprehensive income
Basic net income per unit
Class A units
Class B units
Pure Multi’s interest
As at
($000s)
Total assets
Total liabilities
Partners’ capital
Investment properties
Mortgages payable
Pure Multi’s interest
As at
($000s)
Total assets
Total liabilities
Partners’ capital
Investment properties
Mortgages payable
December 31,
2015
September 30,
2015
$ 16,547
$ 15,378
June 30,
2015
$ 13,902
March 31,
2015
$ 13,049
7,437
9,110
(3,981)
(278)
4,363
10,415
0.23
2.60
6,950
8,428
(6,117)
(183)
10,340
11,583
0.26
2.90
6,087
7,815
(2,980)
(261)
9,401
13,896
0.34
3.47
5,706
7,343
(2,921)
(192)
11,134
15,285
0.42
3.82
December 31,
2014
September 30,
2014
$ 13,996
$ 12,953
June 30,
2014
$ 10,900
March 31,
2014
$ 10,626
6,336
7,660
(3,036)
(209)
15,132
19,216
0.52
4.80
5,990
6,963
(3,213)
(141)
7,117
10,637
0.31
2.66
5,118
5,782
(2,357)
(226)
5,865
8,987
0.33
2.25
December 31,
2015
September 30,
2015
June 30,
2015
$ 691,153
$ 654,499
$ 565,553
386,879
304,274
613,682
354,202
393,863
260,636
629,035
354,455
312,382
253,171
517,148
276,338
December 31,
2014
September 30,
2014
June 30,
2014
$ 492,791
$ 480,830
$ 403,967
294,993
197,798
468,518
256,735
298,810
182,020
462,725
262,183
257,326
146,641
389,797
223,995
4,919
5,707
(2,326)
(194)
-
3,110
0.12
0.78
March 31,
2015
$ 482,813
273,168
209,645
452,568
240,577
March 31,
2014
$ 347,489
226,963
120,526
337,945
196,046
40
Pure Multi-Family REIT LP
MD&A – December 31, 2015
SECTION IV
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with IFRS requires management to make estimates and
assumptions during the reporting period that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Pure Multi’s significant accounting policies are described in note 3 to the
December 31, 2015 audited consolidated financial statements, available on SEDAR at www.sedar.com and on Pure
Multi’s website at www.puremultifamily.com.
The policies that are most subject to estimation and judgment are outlined below.
Valuation of Investment Properties
The fair value of the investment properties is determined by management, using recognized valuation techniques
supported, in certain instances, by independent real estate valuation experts.
The determination of the fair value of investment properties requires the use of estimates such as future cash flows
from assets (based on factors such as tenant profiles, future revenue streams and overall repair and condition of the
property), capitalization rates and discount rates applicable to those assets. These estimates are based on market
conditions existing at the reporting date.
The following approaches, either individually or in combination, are used by management, together with the
appraisals, in their determination of the fair value of the investment properties:
The Income Approach derives market value by estimating the future cash flows that will be generated by the property
and then applying an appropriate capitalization rate or discount rate to those cash flows. This approach can utilize the
direct capitalization method and/or the discounted cash flow analysis.
The Direct Comparison Approach involves comparing or contrasting the recent sale, listing or optioned prices of
properties comparable to the subject and adjusting for any significant differences between them.
Management reviews each appraisal obtained and ensures the assumptions used by the appraisers are reasonable and
the final fair value amount reflects those assumptions used in the various approaches above. Where an appraisal is
not obtained at the reporting date, management uses the approaches described above to estimate the fair value of the
investment properties.
ACCOUNTING STANDARDS NOT YET ADOPTED
Pure Multi’s significant accounting policies are described in note 3 to the December 31, 2015 audited consolidated
statements, available on SEDAR at www.sedar.com and on Pure Multi’s website at
financial
www.puremultifamily.com.
Standards issued but not yet effective
(a)
IFRS 9 - Financial instruments
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9 (2014)”).
The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2018 and
must be applied retrospectively with some exemptions. Early adoption is permitted. The restatement of prior
periods is not required and is only permitted if information is available without the use of hindsight.
41
Pure Multi-Family REIT LP
MD&A – December 31, 2015
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under
IFRS 9 (2014), financial assets are classified and measured based on the business model in which they are held
and the characteristics of their contractual cash flows. The standard introduces additional changes relating to
financial liabilities. It also amends the impairment model by introducing a new ‘expected credit loss’ model for
calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge accounting more
closely with risk management. This new standard does not fundamentally change the types of hedging
relationships or the requirement to measure and recognize ineffectiveness, however it will provide more hedging
strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to
assess the effectiveness of a hedging relationship. Special transitional requirements have been set for the
application of the new general hedging model.
Pure Multi intends to adopt IFRS 9 (2014) for the annual period beginning on January 1, 2018. The extent of
the impact of adoption of the standard has not yet been determined, however it is not expected to have a material
impact on Pure Multi’s consolidated financial statements.
(b)
IFRS 15 – Revenue from Contracts with Customers
On May 28, 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). The new
standard is effective for annual periods beginning on or after January 1, 2018. Early application is permitted.
IFRS 15 will replace IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty
Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of Assets from
Customers, and SIC 31, Revenue – Barter Transactions Involving Advertising Services.
The standard contains a single model that applies to contracts with customers and two approaches to recognizing
revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions
to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds
have been introduced, which may affect the amount and/or timing of revenue recognized.
The new standard applies to contracts with customers. It does not apply to insurance contracts, financial
instruments or lease contracts, which fall in the scope of other IFRSs.
Pure Multi intends to adopt IFRS 15 for the annual period beginning on January 1, 2018. Pure Multi does not
expect the standard to have a material impact on the consolidated financial statements.
(c)
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). The new standard is effective for annual
periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 at
or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17, Leases (“IAS 17”).
This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities
for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required
to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing
its obligation to make lease payments.
This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring
enhanced disclosures to be provided by lessors.
Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional
provisions have been provided.
Pure Multi intends to adopt IFRS 16 for the annual period beginning on January 1, 2019. The extent of the impact
of adoption of the standard has not yet been determined, however it is not expected to have a material impact on
Pure Multi’s consolidated financial statements.
42
Pure Multi-Family REIT LP
MD&A – December 31, 2015
SECTION V
RISKS AND UNCERTAINTIES
All income producing property investments are subject to a degree of risk and uncertainty. They are affected by
various factors including general market conditions and local market circumstances. An example of general market
conditions would be the availability of long-term financing whereas local conditions would relate to factors affecting
specific properties in a particular geographic location, such as changes in market lease rates as a result of an over-
supply of space or a reduction in demand for real estate. Management attempts to manage these risks by acquiring
investment properties in various cities with strong economic and growth indicators, and engaging property
management groups with local knowledge and experience.
The board of directors of the Governing GP has the overall responsibility for the establishment and oversight of Pure
Multi’s risk management framework. Pure Multi’s risk management policies are established to identify and analyze
the risks faced by Pure Multi, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in response
to Pure Multi’s activities.
In the normal course of business, Pure Multi is exposed to a number of risks that can affect its operating performance.
These risks, and the actions taken to manage them, are as follows:
Interest Rate and Financial Risk
Interest rate risk arises from the possibility that the value of, or cash flows related to, a financial instrument will
fluctuate as a result of changes in market interest rates. Pure Multi is exposed to financial risk from the interest rate
differentials between the market rate and the rates used on these financial instruments.
Pure Multi manages its financial instruments and interest rate risks based on its cash flow needs. Pure Multi minimizes
interest rate risk by obtaining long-term, fixed rate mortgages whenever possible. It targets a conservative ratio of
debt to gross book value within the range of 55% to 65% and is restricted under the LP Agreement to a maximum of
70%. As all of the mortgages payable bear interest at fixed rates, Pure Multi does not face significant interest rate
risk.
The profile of Pure Multi’s interest-bearing financial instruments was:
Pure Multi’s interest
Fixed rate instruments
Mortgages payable
Convertible debentures
Preferred units of subsidiary
Variable rate instruments
Credit facility
Face Value
December 31, 2015 December 31, 2014
$ 357,075,437
23,000,000
125,000
380,200,437
$ 255,573,769
23,000,000
125,000
278,698,769
-
5,546,485
43
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Credit Risk
Credit risk is the risk of financial loss to Pure Multi if a tenant, customer or counterparty to a financial instrument fails
to meet its contractual obligations, and arises principally from Pure Multi’s receivables from tenants.
Pure Multi’s exposure to credit risk is influenced mainly by the individual characteristics of each tenant. Pure Multi,
through the US REIT, minimizes the risk by checking tenants’ credit histories, requesting security deposits and
initiating a prompt collection process. In addition, there is no concentration of credit risk due to the large number of
individual tenants.
Currency Risk
Pure Multi is exposed to minimal currency risk as a relatively small portion of the expenses are in Canadian dollars.
Lease Rollover Risk
Lease rollover risk arises from the possibility that Pure Multi may experience difficulty renewing leases as they expire
or in re-leasing space vacated by tenants upon lease expiry. All leases of Pure Multi’s investment properties have
lease terms of one year or less. Typically, Pure Multi instructs its property managers to initiate the renewal process
before the existing leases expire. For any vacant spaces, Pure Multi uses qualified leasing agents to actively market
the spaces.
Class A Unit Prices
It is not possible to predict the price at which units will trade and there can be no assurance that an active trading
market for the Class A Units will be sustained. The Class A Units will not necessarily trade at values determined
solely by reference to the value of the investment properties of Pure Multi. Accordingly, the Class A Units may trade
at a premium or discount to the value implied by the value of Pure Multi’s investment properties. The market price
for the Class A Units may be affected by changes in general market conditions, fluctuations in the markets for equity
securities and numerous other factors beyond Pure Multi’s control.
Environmental Risk
As an owner of real property, Pure Multi is subject to various federal, state and municipal laws relating to
environmental matters.
Management carries out environmental inspections, by qualified environmental consultants, before a property is
purchased. Management is not aware of any material non-compliance with environmental laws with respect to the
current portfolio and is not aware of any pending or threatened investigations or actions by environmental regulatory
authorities in connection with the current portfolio.
Liquidity Risk
Real property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relation to
demand for and the perceived desirability of such investments. Such illiquidity may tend to limit Pure Multi’s ability
to vary its portfolio promptly in response to changing economic or investment conditions. If Pure Multi were required
to liquidate a real property investment, the proceeds to Pure Multi might be significantly less than the aggregate
carrying value of such property.
Liquidity risk is the risk that Pure Multi will not be able to meet its financial obligations as they fall due. Pure Multi’s
approach to managing liquidity is to ensure that it will have sufficient cash available to meet its liabilities when due.
In addition, Pure Multi intends to refinance any mortgages which mature within six months.
44 Pure Multi-Family REIT LP
MD&A – December 31, 2015
The following table provides the future non-discounted scheduled payments of financial liabilities, including estimated
interest payments:
Year ended December 31,
2016
2017
2018
2019
2020 and thereafter
Mortgages payable (principal and
interest)
Convertible debentures payable
(principal and interest)
Preferred units of subsidiary (principal
and interest)
Accounts payable and accrued
liabilities
Total
Tax Risk
$ 15,219,689
$ 15,756,027
$ 30,685,613
$ 76,152,422
$ 337,941,459
1,495,000
1,495,000
1,495,000
1,495,000
24,122,274
15,625
15,625
15,625
15,625
140,625
10,409,972
-
-
-
-
$ 27,140,286
$ 17,266,652
$ 32,196,238
$ 77,663,047
$ 362,204,358
The US REIT currently qualifies as a real estate investment trust for U.S. federal income tax purposes. Thus, the US
REIT is not subject to U.S. federal income tax. If the US REIT does not qualify or ceases to qualify as a REIT under
the REIT exception, adverse consequences could arise including a material reduction of distributions to unitholders
and Pure Multi.
There can be no assurance that Canadian or U.S. federal income tax laws regarding the treatment of REITs will not
be changed, or that administrative and assessment practices of the Canada Revenue Agency or IRS will not develop
in a manner which adversely affects Pure Multi or its unitholders.
RELATED PARTY TRANSACTIONS
Managing GP
Pure Multi is related to the Managing GP, by virtue of having an officer and director in common (Stephen Evans).
During the year ended December 31, 2015, Pure Multi declared distributions to the Managing GP in the amount of
$790,515 (year ended December 31, 2014 - $595,945). Included in accounts payable and accrued liabilities at
December 31, 2015 was $nil (December 31, 2014 - $495,630).
Sunstone U.S. Opportunity (No. 2) Realty Trust
Pure Multi is related to Sunstone U.S. Opportunity (No. 2) Realty Trust, by virtue of having officers and directors in
common (Stephen Evans, Robert King and James Redekop).
There have been no related party transactions between Pure Multi and Sunstone U.S. Opportunity (No. 2) Realty Trust
during the year ended December 31, 2015. During the year ended December 31, 2014, Pure Multi acquired the
following investment properties from Sunstone U.S. Opportunity (No. 2) Realty Trust:
• Walker Commons acquired on June 27, 2014 for a purchase price of $43,800,000;
•
•
50% interest in Preserve acquired on August 28, 2014 for a purchase price of $20,500,000; and
80% interest in San Brisas acquired on August 28, 2014 for a purchase price of $22,640,000.
45
Pure Multi-Family REIT LP
MD&A – December 31, 2015
Pure Multi negotiated the purchase price of the properties above with reference to independently prepared third party
appraisals.
As part of the closing adjustments on the acquisitions of Walker Commons and the 80% interest in San Brisas, Pure
Multi paid to Sunstone U.S. Opportunity (No. 2) Realty Trust an amount equal to the fair market value adjustment
that Pure Multi would have incurred if it had assumed the mortgage as part of the acquisition. The total amount paid,
related to these adjustments, to Sunstone U.S. Opportunity (No. 2) Realty Trust during the year ended December 31,
2014 was $2,926,438.
Sunstone U.S. Opportunity (No. 3) Realty Trust
Pure Multi is related to Sunstone U.S. Opportunity (No. 3) Realty Trust, by virtue of having officers and directors in
common (Stephen Evans, Robert King and James Redekop).
There have been no related party transactions between Pure Multi and Sunstone U.S. Opportunity (No. 3) Realty Trust
during the year ended December 31, 2015. During the year ended December 31, 2014, Pure Multi acquired the
following investment property from Sunstone U.S. Opportunity (No. 3) Realty Trust:
•
50% interest in Preserve acquired on August 28, 2014 for a purchase price of $20,500,000.
Pure Multi negotiated the purchase price of the property above with reference to an independently prepared third party
appraisal.
Tipton Asset Group, Inc.
Sunstone Multi-Family Management Inc. provides property management services to the US REIT pursuant to a
Property Management Agreement, dated May 9, 2012, as amended July 9, 2012. Sunstone Multi-Family Management
Inc. subcontracted Tipton Asset Group, Inc. (“Tipton”) as the property manager for Pure Multi. Pure Multi is related
to Tipton by virtue of having an officer and director in common with a subsidiary of Pure Multi (Bryan Kerns). Tipton
charged $1,764,027 in property management fees during the year ended December 31, 2015 (year ended December
31, 2014 - $1,454,305). Included in accounts payable and accrued liabilities at December 31, 2015 was $nil
(December 31, 2014 - $nil).
Compensation
Currently, the directors of the Governing GP who are not affiliated with or employees of the Managing GP receive
annual compensation, in addition to fees for attending meetings of the directors or any committee, and acting as
committee chairs and members. As well, the Governing GP will indirectly reimburse such directors for any out of
pocket expenses, including out of pocket expenses for attending meetings. Pure Multi will reimburse the Governing
GP for such amounts. In addition, Pure Multi will obtain insurance coverage for such directors. Compensation will
be reviewed on an annual basis, giving consideration to Pure Multi’s growth and the extent of its portfolio. The
amount incurred during the year ended December 31, 2015 was $210,293 (year ended December 31, 2014 - $96,797).
Asset Management Agreement
The Managing GP, pursuant to the Asset Management Agreement, provides asset management, administrative and
reporting services to Pure Multi as its managing general partner. The Asset Management Agreement also requires the
Managing GP to provide Pure Multi, at no cost, with support services consisting of office space and equipment and
the necessary clerical and secretarial personnel for the administration of its day-to-day activities. The Asset
Management Agreement may be terminated by Pure Multi at any time upon the occurrence of certain events of default
and at any other time, without bonus or penalty, upon not less than 60 days notice. In lieu of the fees typically
associated with a third party asset management agreement, the Managing GP will only be entitled to a reimbursement
of any reasonable costs and expenses (including legal and audit costs but excluding personnel costs) that it incurs
providing asset management services to Pure Multi and will not be entitled to any other remuneration or compensation
for its services.
46 Pure Multi-Family REIT LP
MD&A – December 31, 2015
OUTSTANDING UNIT DATA
Except as set out in the LP Agreement, no Class A Unit or Class B Unit has any preference or priority over another.
The Class A Units and the Class B Units have voting rights as set out in the LP Agreement.
Upon completion of the offerings and exercise of the over-allotment option, holders of Class A Units share in a 95%
equity interest in all distributions and all net assets of Pure Multi, and the Managing GP, as the holder of Class B
Units, shares in a 5% equity interest in all distributions and all net assets of Pure Multi.
As at March 10, 2016, the following of Pure Multi’s securities were outstanding:
(a) 200,000 Class B Units. Pursuant to the LP Agreement, the Class B Unitholders as a class are entitled to
convert some or all of their Class B Units into Class A Units based on the Specified Ratio. See “Financial
Condition – Partners’ Capital”;
(b) 49,039,824 Class A Units;
(c) 2,142,912 Warrants; and
(d) 23,000 Convertible Debentures. The Convertible Debentures are convertible at the option of the holder and
redeemable by Pure Multi in accordance with the terms of the trust indenture dated August 7, 2013. See
“Financial Condition – Convertible Debentures”.
SECTION VI
SUBSEQUENT EVENTS
Pure View at TPC (“Pure View”)
On March 1, 2016, Pure Multi, through the US REIT, acquired Pure View, a multi-family apartment community
located in San Antonio, Texas, for a purchase price of $61,000,000, plus standard closing costs and adjustments. This
acquisition was financed with cash on hand and proceeds from a new mortgage financing.
Pure Estates at TPC (“Pure Estates”)
On March 1, 2016, Pure Multi, through the US REIT, acquired Pure Estates, a multi-family apartment community
located in San Antonio, Texas, for a purchase price of $56,500,000, plus standard closing costs and adjustments. This
acquisition was financed with cash on hand and proceeds from a new mortgage financing.
ADDITIONAL INFORMATION
Additional information relating to Pure Multi is available on SEDAR at www.sedar.com and on Pure Multi’s website
at www.puremultifamily.com.
TRADING SYMBOLS
TSX Venture Exchange: RUF.U, RUF.UN, RUF.DB.U
OTCQX: PMULF
47 PURE MULTI-FAMILY REIT LP
Consolidated Financial Statements
Year ended December 31, 2015
Expressed in United States dollars
48
Brackenridge at Midtown, San Antonio, TX
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
INDEPENDENT AUDITORS’ REPORT
To the Directors of Pure Multi-Family REIT (GP) Inc.
We have audited the accompanying consolidated financial statements of Pure Multi-Family REIT LP, which
comprise the consolidated statements of financial position as at December 31, 2015 and 2014, the
consolidated statements of partners’ capital, income and comprehensive income, and cash flows for the
years then ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of Pure Multi-Family REIT LP as at December 31, 2015 and 2014, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Chartered Professional Accountants
March 9, 2016
Vancouver, Canada
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
49 ASSETS
Non-current assets
Investment properties (note 4)
Current assets
Prepaid expenses
Mortgage reserve fund (note 6)
Amounts receivable
Cash and cash equivalents (note 7)
TOTAL ASSETS
LIABILITIES
Non-current liabilities
Mortgages payable (note 8)
Convertible debentures (note 9)
Preferred units of subsidiary (note 10)
Current liabilities
Mortgages payable – current portion (note 8)
Credit facility (note 11)
Rental deposits
Unearned revenue
Accounts payable and accrued liabilities
Pure Multi-Family REIT LP
Consolidated Statement of Financial Position
Expressed in United States dollars
December 31, 2015
December 31, 2014
$ 613,681,875
$ 468,518,077
1,456,482
6,570,597
811,420
68,632,392
77,470,891
1,087,631
6,208,641
486,118
16,490,085
24,272,475
$ 691,152,766
$ 492,790,552
$ 352,331,209
20,319,890
125,000
372,776,099
$ 255,126,917
19,876,109
125,000
275,128,026
1,870,858
-
1,004,731
816,880
10,409,972
14,102,441
1,608,076
5,474,301
802,296
910,674
11,069,372
19,864,719
TOTAL LIABILITIES
386,878,540
294,992,745
PARTNERS’ CAPITAL (note 12)
304,274,226
197,797,807
TOTAL LIABILITIES AND PARTNERS’ CAPITAL
$ 691,152,766
$ 492,790,552
Nature of business and basis of presentation (notes 1 and 2)
Subsequent events (note 21)
Approved on behalf of the Board of Directors of the General Partner,
Pure Multi-Family REIT (GP) Inc.:
“Robert W. King”
Robert W. King
Director
“Stephen J. Evans”
Stephen J. Evans
Director
The accompanying notes are an integral part of these consolidated financial statements
50 Pure Multi-Family REIT LP
Consolidated Statement of Partners’ Capital
Expressed in United States dollars
Limited
Partners
Class A
Limited
Partners
Class B
General
Partner
Other Equity
Items (note 12)
Accumulated
Earnings
Total
Balance,
December 31, 2014
$ 159,153,127
$ 1,000,000
$ 20
$ 2,683,024
$ 34,961,636
$ 197,797,807
Issuance of units
74,623,250
Conversion of warrants,
net of offering costs
Offering costs
Distributions to limited
partners
Net income for the year
Balance,
December 31, 2015
17,456
(3,515,918)
-
-
-
-
-
-
-
-
-
-
-
-
-
(17,456)
-
-
-
-
-
-
74,623,250
-
(3,515,918)
(15,810,293)
(15,810,293)
51,179,380
51,179,380
$ 230,277,915
$ 1,000,000
$ 20
$ 2,665,568
$ 70,330,723
$ 304,274,226
Limited
Partners
Class A
Limited
Partners
Class B
General
Partner
Other Equity
Items (note 12)
Accumulated
Earnings (Deficit)
Total
Balance,
December 31, 2013
$ 111,876,144
$ 1,000,000
$ 20
$ 1,985,429
$ 4,931,260
$ 119,792,853
Issuance of units
49,460,167
Issuance of warrants
Offering costs
Distributions to limited
partners
Net income for the year
Balance,
December 31, 2014
-
(2,183,184)
-
-
-
-
-
-
-
-
-
-
-
-
-
703,332
(5,737)
-
-
-
-
-
49,460,167
703,332
(2,188,921)
(11,918,901)
(11,918,901)
41,949,277
41,949,277
$ 159,153,127
$ 1,000,000
$ 20
$ 2,683,024
$ 34,961,636
$ 197,797,807
The accompanying notes are an integral part of these consolidated financial statements
51 Pure Multi-Family REIT LP
Consolidated Statement of Income and Comprehensive Income
Expressed in United States dollars
December 31, 2015
December 31, 2014
$ 58,875,799
$ 48,132,585
Year ended
REVENUES
Rental
OPERATING EXPENSES
Insurance
Property management
Property taxes
Property operating expenses
NET RENTAL INCOME
NET FINANCE INCOME (EXPENSES)
Interest income
Interest expense (note 13)
Distributions to subsidiary’s preferred unitholders
NET OTHER INCOME (EXPENSES)
Other income
General and administrative
Fair value adjustments to investment properties (note 4)
Gain (loss) on disposal of investment properties (note 4)
Franchise taxes
1,542,422
1,764,027
8,500,250
13,655,094
25,461,793
33,414,006
14,202
(15,998,065)
(15,625)
(15,999,488)
12,424
(913,588)
34,519,113
525,088
(378,175)
33,764,862
1,286,961
1,443,890
6,696,196
12,217,725
21,644,772
26,487,813
4,851
(10,343,424)
(15,625)
(10,354,198)
1,263
(769,883)
27,506,544
(235,421)
(329,145)
26,173,358
SHARE OF LOSS OF EQUITY-ACCOUNTED
INVESTMENT (note 5)
-
(357,696)
NET INCOME AND COMPREHENSIVE INCOME
$ 51,179,380
$ 41,949,277
Earnings per Class A unit
Basic
Diluted (note 20)
Weighted average number of Class A units
Basic
Diluted (note 20)
Earnings per Class B unit
Basic and diluted
Weighted average number of Class B units
Basic and diluted
$
$
1.22
1.15
$ 1.35
$ 1.23
39,761,071
43,831,867
29,512,727
33,583,523
$ 12.79
$ 10.49
200,000
200,000
The accompanying notes are an integral part of these consolidated financial statements
52
Pure Multi-Family REIT LP
Consolidated Statement of Cash Flows
Expressed in United States dollars
December 31, 2015
December 31, 2014
$
51,179,380
$
41,949,277
1,255,192
(3,209,439)
(34,519,113)
(1,479,908)
761,686
-
(525,088)
(14,202)
17,952,312
15,625
(2,261,582)
29,154,863
586,744
(687,895)
(27,506,544)
(587,949)
7,453
357,696
235,421
(4,851)
10,444,575
15,625
1,923,977
26,733,529
(172,850,553)
(110,625,439)
(2,920,095)
51,901,950
(1,430,727)
-
-
14,202
(2,157,679)
10,500,000
(720,522)
(5,660,000)
2,473,013
4,851
(125,285,223)
(106,185,776)
(15,625)
(15,071,502)
(17,674,432)
158,600,000
(361,956)
(1,564,383)
74,623,250
(41,200,282)
(5,546,485)
(3,515,918)
-
-
148,272,667
(15,625)
(11,348,066)
(10,501,496)
70,050,000
(551,622)
(600,966)
49,460,167
(5,887,852)
-
(2,188,921)
150,000
703,332
89,268,951
Year ended
Cash provided by (used in)
OPERATIONS
Net income
Items not involving cash:
Amortization of transaction costs and accretion of convertible
debentures
Amortization and write-off of mark to market mortgage
adjustment
Fair value adjustments to investment properties (note 4)
Property tax adjustments on acquisition
Property tax adjustments on sale
Share of loss of equity-accounted investee (note 5)
(Gain) loss on disposal of investment properties (note 4)
Interest income
Interest expense
Distributions to subsidiary’s preferred unitholders
Net change in non-cash working capital items (note 14)
INVESTING
Acquisitions of investment properties
Capital additions to investment properties
Proceeds received on disposal of investment properties
Disposition costs on disposal of investment properties
Transfer of investment property from equity-accounted investment
Investments from equity-accounted investment
Interest received
FINANCING
Distributions paid to subsidiary’s preferred unitholders
Distributions paid to limited partners
Interest paid
Mortgage proceeds received
Funds to mortgage reserve fund
Payment of finance transaction costs
Proceeds from the issuance of limited partner units
Repayment of mortgages payable
Repayment of bank credit facility
Unit offering costs
Credit facility proceeds received
Proceeds from the issuance of warrants
The accompanying notes are an integral part of these consolidated financial statements
53 Pure Multi-Family REIT LP
Consolidated Statement of Cash Flows (continued)
Expressed in United States dollars
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
52,142,307
16,490,085
9,816,704
6,673,381
CASH AND CASH EQUIVALENTS, END OF YEAR
$
68,632,392
$
16,490,085
Supplemental cash flow information:
Non-cash financing and investing activity:
Cash distributions to the limited partners included in accounts
payable and accrued liabilities
$
1,532,495
$
1,584,218
The accompanying notes are an integral part of these consolidated financial statements
54 Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
1)
PURE MULTI-FAMILY REIT LP INFORMATION
Pure Multi-Family REIT LP (“Pure Multi”) is a limited partnership formed under the Limited Partnership Act
(Ontario) to invest in multi-family real estate properties in the United States. Pure Multi was established by
Pure Multi-Family Management Limited Partnership (the “Managing GP”), its managing general partner, and
Pure Multi-Family REIT (GP) Inc. (the “Governing GP”), its governing general partner, pursuant to the terms
of the Limited Partnership Agreement (“LP Agreement”). Pure Multi’s head office and address for service is
located at 910 – 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2. A copy of the Limited
Partnership Agreement can be obtained from Pure Multi or on SEDAR at www.sedar.com.
Pure Multi was established for, among other things, the purposes of:
a)
b)
c)
acquiring Common Shares and a Series A Preferred Share of Pure US Apartments REIT Inc. (the “US
REIT”);
temporarily holding cash and investments for the purposes of paying the expenses and liabilities of Pure
Multi and making distributions to Unitholders;
in connection with the undertaking set out above, reinvesting income and gains of Pure Multi and taking
other actions besides the mere protection and preservation of Pure Multi property.
The US REIT was established for, among other things, the purposes of acquiring, owning and operating multi-
family real estate properties in the United States.
These consolidated financial statements for the year ended December 31, 2015 were authorized for issue by
the Board of Directors of the Governing GP (the “Board”) on March 9, 2016.
2)
BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE
a. Statement of compliance and basis of presentation
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”)
incorporating interpretations issued by the IFRS Interpretations Committee (“IFRICs”).
b. Basis of measurement
These consolidated financial statements have been prepared on a historical cost basis, except for investment
properties which have been measured at fair value.
The preparation of these consolidated financial statements requires the use of certain critical accounting
estimates. It also requires management to exercise judgment in the process of applying Pure Multi’s
accounting policies. Areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial statements are disclosed in note 3(P).
c. Functional and presentation currency
These consolidated financial statements are presented in United States dollars, which is Pure Multi’s
functional currency.
55
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
d. Presentation of financial statements
Pure Multi uses a classified statement of financial position. The consolidated statement of financial position
distinguishes between current and non-current assets and liabilities. Current assets and liabilities are those
expected to be recovered or settled within twelve months from the reporting date and non-current assets
and liabilities are those where the recovery or settlement is expected to occur more than twelve months
from the reporting date. Pure Multi classifies the statements of income and comprehensive income using
the function of expense method, which classifies expenses according to their functions, such as costs of
operations or administrative activities.
3)
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of these consolidated financial statements are set
out below. The accounting policies have been applied consistently by group entities unless otherwise stated.
A. Basis of consolidation
The consolidated financial statements comprise the financial statements of Pure Multi and its subsidiaries,
over which Pure Multi has control. Control exists when Pure Multi has the power to govern the financial
and operating policies of an entity so as to obtain benefit from its activities. The financial statements of
subsidiaries are consolidated from the date that control commences and continue to be consolidated until
the date that control ceases.
On October 1, 2013, Pure Multi entered into a co-ownership agreement with another party in the form of a
limited partnership. The entity operated in the same way as other entities, except that contractual
arrangements between the two partners established joint control over the economic activities of the entity.
Each partner did not have rights to individual assets or liabilities of the entities, but was entitled to a share
of the outcome of activities of the arrangement. Pure Multi accounted for its interest in the jointly controlled
entity using the equity method. Under the equity method, the interest in the joint venture is carried in the
consolidated statement of financial position at purchase price plus any post acquisition changes in Pure
Multi`s share of the net assets. On August 28, 2014, Pure Multi acquired the remaining ownership interest
in the jointly controlled entity, giving it 100% control of the entity and its underlying investment property.
As of August 28, 2014, the date control was established, Pure Multi began accounting for this investment
property using the consolidation method.
Intra-group transactions and balances are eliminated in preparing the consolidated financial statements.
The consolidated financial statements reflect the financial position, results of operations and cash flows of
Pure Multi and its subsidiaries.
B. Property acquisitions and business combinations
Where property is acquired, management considers the substance of the agreement in determining whether
the acquisition represents the acquisition of a property or a business combination. The basis of the judgment
is set out in note 3(P).
Where such acquisitions are not judged to be a business combination, they are treated as asset acquisitions.
The cost to acquire the property, including transaction costs, is allocated between the identifiable assets
acquired and liabilities assumed based on their relative fair values at the acquisition date. Otherwise,
acquisitions are accounted for as a business combination.
56
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
C. Investment properties
Investment properties are comprised of properties held to earn rental revenue or for capital appreciation or
both. Investment properties are measured initially at cost including transaction costs. Transaction costs
include transfer taxes, professional fees for legal services and initial leasing commissions to bring the
property to the condition necessary for it to be capable of operating.
Subsequent to initial recognition, investment properties are measured at fair value and related gains or
losses on the disposal of an investment property are determined as the difference between net disposal
proceeds and the carrying value of the asset on the date the transaction occurred. Pure Multi defines fair
value to be the price received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Therefore, the fair value of recently acquired investment
property would be the purchase price. Any subsequent valuations performed on an investment property,
after the acquisition date, would be the new basis for the fair value recorded on the investment property.
Gains or losses arising from changes in fair values are included in the statement of income and
comprehensive income in the period in which they arise.
An investment property is derecognized when it has been disposed of or permanently withdrawn from use
and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or
disposal of an investment property are recognized in the statement of income and comprehensive income
in the period of retirement or disposal.
D. Leases
Leases are classified according to the substance of the transaction. Leases that transfer substantially all the
risks and benefits of ownership from Pure Multi to the lessees are accounted for as finance leases. All
current leases of Pure Multi are operating leases.
E. Convertible debentures
Convertible debentures issued by Pure Multi are converted into Class A units (each a “Class A Unit”) of
Pure Multi at the option of the holder, and the number of Class A units to be issued does not vary with
changes in their fair value.
Upon issuance, convertible debentures are separated into their debt and conversion feature components.
The debt component of the convertible debenture is recognized initially at fair value of a similar debt
instrument without a conversion feature. Subsequent to initial recognition, the debt component of a
compound financial instrument is measured at amortized cost using the effective interest method.
The conversion feature of the convertible debentures is initially recognized at fair value. The convertible
debentures are convertible into Class A Units at the holder’s option. As a result of this obligation, the
convertible debentures are exchangeable into equity (the Class A Units are equity by definition) and
accordingly the conversion feature component of the convertible debentures is also equity. Accordingly,
the conversion feature component of the convertible debentures is recorded in the consolidated statement
of partners’ capital.
Any directly attributable transaction costs are allocated to the debt and conversion components of the
convertible debentures in proportion to their initial carrying amounts.
57
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
F. Revenue recognition
Rental revenue is recognized on a straight line basis over the term of the lease subject to ultimate collection
being reasonably assured. Revenue includes recoveries of specified operating expenses, in accordance with
the terms of the lease agreements. Recoveries are recognized in the period in which the related operating
expense was incurred and collectability is reasonably assured.
G. Finance income (expenses)
Finance income (expenses) consists of interest income, mortgage interest, credit facility interest, convertible
debenture interest, distributions to preferred unitholders and preferred unit offering costs. Finance income
is recognized in the period in which it is earned, while finance expenses are recognized in the period in
which they are incurred.
H. Translation of foreign currency
The functional and reporting currency of Pure Multi is United States dollars. Pure Multi has certain
transactions in Canadian dollars. Monetary items are translated at the exchange rate in effect at the
statement of financial position date and non-monetary items are translated at historical exchange rates.
Revenue and expense items are translated at the exchange rate in effect on the dates they occur. Realized
and unrealized exchange gains and losses are included in earnings.
I. Financial instruments
Non-derivative financial assets and non-derivative financial liabilities are initially recognized at fair value,
and their subsequent measurement is dependent on their classification as described below. The
classification depends on the purpose for which the financial instruments were acquired or issued, their
characteristics and Pure Multi’s designation of such instruments.
Pure Multi classifies its financial instruments as follows:
Cash and cash equivalents
Amounts receivable
Mortgage reserve fund
Accounts payable and accrued liabilities
Credit facility
Convertible debentures
Preferred units of subsidiary
Mortgages payable
Loans and receivables
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market. These assets are recognized initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, they are accounted for at amortized cost, using the effective interest
rate method, less any impairment losses.
Non-derivative financial liabilities are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, these financial liabilities are accounted for at amortized
cost, using the effective interest rate method.
58
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
J. Fair value
Pure Multi measures investment properties at fair value at each balance sheet date. The fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date under current market conditions. In certain circumstances, the
initial fair value may be based on other observable current market transactions, without modification or on
a valuation technique using market based inputs.
Fair value measurements recognized in the statement of financial position are categorized in accordance
with the following levels:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Quoted prices in active markets for similar assets or liabilities or valuation techniques where
significant inputs are based on observable market data.
• Level 3: Valuation techniques for which any significant input is not based on observable market data.
K. Impairment of financial assets
At each reporting date, Pure Multi assesses whether there is objective evidence that a financial asset is
impaired. If a financial asset carried at amortized cost is impaired, the amount of the loss is measured as
the difference between the amortized cost of the loan or receivable and the present value of the estimated
future cash flows, discounted using the instrument’s original effective interest rate. The loss is recognized
in impairment expense.
L. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, and cash held at banks or other financial institutions
where cash is readily available to access.
M. Earnings per unit
Basic and diluted earnings per Class A and Class B unit have been calculated based on the proportion of
the earnings allocated to the respective class of units, and the respective weighted average number of Class
A units and Class B units outstanding.
N. Taxes
a.
Income Taxes
Pure Multi is not subject to tax under Part I of the Income Tax Act (Canada) (the “Tax Act”). Each partner
of Pure Multi is required to include in computing the partner’s income for a particular taxation year the
partner’s share of the income or loss of Pure Multi for its fiscal year ending in or on the partner’s taxation
year-end, whether or not any of that income or loss is distributed to the partner in the taxation year.
Accordingly, no provision has been made for Canadian income taxes under Part I of the Tax Act.
59
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
The Tax Act contains rules regarding the taxation of certain types of publicly listed or traded trusts and
partnerships and their investors (the “SIFT Measures”). A specified investment flow-through partnership
(a “SIFT partnership”, as defined in the Tax Act) will be subject to SIFT tax on its “taxable non-portfolio
earnings” (as defined in the Tax Act) at a rate that is substantially equivalent to the general income tax rate
applicable to Canadian corporations. The “taxable non-portfolio earnings” of a SIFT partnership less SIFT
tax payable by a SIFT partnership is deemed to be a taxable dividend received by the SIFT partnership from
a taxable Canadian corporation, subject to the detailed provisions of the Tax Act. Any such deemed taxable
dividend would be allocated to the partners of a SIFT partnership and be taxable as taxable dividends in
their hand. The SIFT Measures do not apply to a partnership that does not hold any “non-portfolio property”
throughout the taxation year of the partnership. Management believes that the Pure Multi does not hold any
“non-portfolio property” and should not be a SIFT partnership and therefore not subject to the SIFT
Measures. Accordingly, no provision has been made for tax under the SIFT Measures. Management
intends to continue to operate Pure Multi in such a manner so as to remain exempt from the SIFT Measures
on a continuous basis in the future. If Pure Multi becomes a SIFT partnership it will be generally subject
to income taxes at a rate that is substantially equivalent to the general tax rate applicable to Canadian
corporations on its taxable non-portfolio earnings, if any.
Pure Multi made a protective election to be treated as a partnership for U.S. federal income tax purposes.
In addition, management believes at least 90% of Pure Multi’s gross income for the taxation year is
qualifying income within the meaning of U.S. Internal Revenue Code (the “Code”) section 7704 and Pure
Multi is not required to register as an investment company under the Investment Company Act of 1940. As
such, it is generally not subject to U.S. federal income tax under the Code. Furthermore, Pure Multi’s
subsidiary, the US REIT, timely made and intends to maintain an election to be taxed as a U.S. real estate
investment trust (“REIT”) under the Code and to take the necessary steps to qualify as a REIT pursuant to
the Code. In order for the US REIT to qualify as a REIT, the US REIT must meet a number of
organizational and operational requirements, including a requirement to make annual dividend distributions
to its shareholders equal to a minimum of 90% of its REIT taxable income, computed without regards to a
dividends paid deduction and net capital gains. As a REIT, the US REIT generally will not be subject to
U.S. federal income tax on its taxable income to the extent such income is distributed as a dividend to
shareholders annually. Management believes that all REIT conditions necessary to eliminate income taxes
for the reporting period have been met, and accordingly no provision for US federal and state income taxes
has been made.
Management intends to operate the US REIT in such a manner so as to qualify as a REIT on a continuous
basis in the future. However, actual qualification as a REIT will depend upon meeting, through actual
annual and quarterly operating results, the various conditions imposed by the Code. If the US REIT fails
to qualify as a REIT in any taxable year, it will be subject to US federal and state income taxes at regular
US corporate rates, including any applicable alternative minimum tax. In addition, the US REIT may not
be able to requalify as a REIT for the four subsequent taxable years. Even if the US REIT qualifies for
taxation as a REIT, the US REIT may be subject to certain US state and local taxes on its income and
property, and to US federal income and excise taxes on its undistributed taxable income and/or specified
types of income in certain circumstances.
b. Texas Franchise Tax
Texas Franchise Tax applicable to Pure Multi, for its investment properties operated in Texas during the
year ended December 31, 2015, is equal to 0.95% of the lesser of: (i) 70% of total revenue; (ii) 100% of
total revenue less cost of goods sold; (iii) 100% of total revenue less compensation expense; or (iv) 100%
of total revenue less $1 million. Pure Multi has recorded a provision for Texas Franchise Tax of $378,175
for the year ended December 31, 2015 (year ended December 31, 2014 - $329,145), which is included
within other expenses in the consolidated statement of income and comprehensive income.
60
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
O. Operating segments
Pure Multi currently operates in one business segment, the owning and operating of multifamily apartment
properties in the sun-belt area in the United States. The primary format for segment reporting is based on
geographical region and is consistent with the internal reporting provided to the chief operating decision-
maker, determined to be the general partners.
P. Significant accounting judgments and estimates
Judgments, estimates and assumptions that affect the application of accounting policies and the reported
amounts of revenues, expenses, assets and liabilities are reviewed on an ongoing basis. Actual results may
differ from these estimates.
a.
Judgments
In the process of applying Pure Multi’s accounting policies, management has made the following critical
judgments, which have the most significant effects on the amounts recognized in the consolidated
financial statements:
(i) Asset acquisitions
Pure Multi, through the US REIT, acquires individual real estate properties. At the time of
acquisition, Pure Multi considers whether or not the acquisition represents the acquisition of a
business. Pure Multi accounts for an acquisition as a business combination where an integrated set
of activities is acquired in addition to the property. More specifically, consideration is made to the
extent to which significant processes are acquired and, in particular, the extent of ancillary services
provided by the property (e.g., maintenance, cleaning, security, bookkeeping, etc.).
When the acquisition of a property does not represent a business, it is accounted for as an acquisition
of a group of assets and liabilities. The cost of the acquisition, including transaction costs, is
allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill
or deferred tax is recognized.
All acquisitions to date by Pure Multi have been determined to be asset acquisitions.
b. Estimates
The significant areas of estimation include the following:
(i) Valuation of investment properties
The fair value of the investment properties is determined by management, using recognized
valuation techniques supported, in certain instances, by independent real estate valuation experts.
The determination of the fair value of investment properties requires the use of estimates such as
future cash flows from assets (based on factors such as tenant profiles, future revenue streams and
overall repair and condition of the property), capitalization rates and discount rates applicable to
those assets. These estimates are based on market conditions existing at the reporting date.
The following approaches, either individually or in combination, are used by management, together
with the appraisals, in their determination of the fair value of the investment properties:
61
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
The Income Approach derives market value by estimating the future cash flows that will be
generated by the property and then applying an appropriate capitalization rate or discount rate to
those cash flows. This approach can utilize the direct capitalization method and/or the discounted
cash flow analysis.
The Direct Comparison Approach involves comparing or contrasting the recent sale, listing or
optioned prices of properties comparable to the subject and adjusting for any significant differences
between them.
Management reviews each appraisal obtained and ensures the assumptions used by the appraisers
are reasonable and the final fair value amount reflects those assumptions used in the various
approaches above. Where an appraisal is not obtained at the reporting date, management uses the
approaches described above, for each investment property, and estimates the fair value.
The significant assumptions used by management in estimating the fair value of investment
properties are set out in note 4.
Q. Provisions
Provisions are recognized by Pure Multi when: i) Pure Multi has a present legal or constructive obligation
as a result of past events; ii) it is probable that an outflow of resources will be required to settle the
obligation; and iii) the amount can be reasonably estimated. If the time value of money is material,
provisions are discounted using a current rate that reflects the risk profile of the liability, and the increase
to the provision due to the passage of time will be recognized as interest expenses.
R. Accounting standards not yet adopted
Financial instruments: classification and measurement
On July 24, 2014 the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9 (2014)”).
The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2018
and must be applied retrospectively with some exemptions. Early adoption is permitted. The restatement
of prior periods is not required and is only permitted if information is available without the use of
hindsight.
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets.
Under IFRS 9 (2014), financial assets are classified and measured based on the business model in which
they are held and the characteristics of their contractual cash flows. The standard introduces additional
changes relating to financial liabilities. It also amends the impairment model by introducing a new
‘expected credit loss’ model for calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge accounting
more closely with risk management. This new standard does not fundamentally change the types of
hedging relationships or the requirement to measure and recognize ineffectiveness, however it will
provide more hedging strategies that are used for risk management to qualify for hedge accounting and
introduce more judgment to assess the effectiveness of a hedging relationship. Special transitional
requirements have been set for the application of the new general hedging model.
Pure Multi intends to adopt IFRS 9 (2014) in its consolidated financial statements for the annual period
beginning on January 1, 2018. The extent of the impact of adoption of the standard has not yet been
determined, however it is not expected to have a material impact on Pure Multi’s consolidated financial
statements.
62
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
Revenue recognition
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). The
new standard is effective for annual periods beginning on or after January 1, 2018. Earlier application is
permitted. IFRS 15 will replace IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer
Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of
Assets from Customers, and SIC 31, Revenue – Barter Transactions Involving Advertising Services.
The standard contains a single model that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-step
analysis of transactions to determine whether, how much and when revenue is recognized. New estimates
and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue
recognized.
The new standard applies to contracts with customers. It does not apply to insurance contracts, financial
instruments or lease contracts, which fall in the scope of other IFRSs.
Pure Multi intends to adopt IFRS 15 in its consolidated financial statements for the annual period
beginning on January 1, 2018. Pure Multi does not expect the standard to have a material impact on the
consolidated financial statements.
Leases
On January 13, 2016 the IASB issued IFRS 16, Leases (“IFRS 16”). The new standard is effective for
annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that
apply IFRS 15 at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17, Leases
(“IAS 17”).
This standard introduces a single lessee accounting model and requires a lessee to recognize assets and
liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and
a lease liability representing its obligation to make lease payments.
This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring
enhanced disclosures to be provided by lessors.
Other areas of the lease accounting model have been impacted, including the definition of a lease.
Transitional provisions have been provided.
Pure Multi intends to adopt IFRS 16 in its financial statements for the annual period beginning on January
1, 2019. The extent of the impact of adoption of the standard has not yet been determined, however it is
not expected to have a material impact on Pure Multi’s consolidated financial statements.
63
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
4)
INVESTMENT PROPERTIES
Balance, at December 31, 2014
Acquisitions
Dispositions
Property tax adjustments on acquisitions and dispositions
Capital additions
Fair value adjustments to investment properties
IFRIC 21 property tax liability adjustment
IFRIC 21 fair value adjustment to investment properties
$
2015
468,518,077
172,850,553
(65,844,185)
718,222
2,920,095
34,519,113
613,681,875
-
-
Balance, December 31, 2015
$
613,681,875
Balance, at December 31, 2013
Acquisitions
Dispositions
Transfer from equity-accounted investment
Property tax adjustments on acquisitions and dispositions
Capital additions
Fair value adjustments to investment properties
IFRIC 21 property tax liability adjustment
IFRIC 21 fair value adjustment to investment properties
$
2014
332,002,818
110,625,439
(10,014,899)
5,660,000
580,496
2,157,679
27,506,544
468,518,077
-
-
Balance, December 31, 2014
$
468,518,077
On January 14, 2015, Pure Multi, through the US REIT, sold Sunset Point Apartments, a multi-family
apartment community (“Sunset Point”), located in Arlington, Texas, for a sale price of $27,950,000, less
standard closing costs and adjustments. The mortgage payable of $15,898,050, secured by Sunset Point, was
assumed by the purchaser on the same date and net cash proceeds received by Pure Multi were $12,051,950.
On May 7, 2015, Pure Multi, through the US REIT, acquired Park at West Avenue, a multi-family apartment
community (“Park West”), located in San Antonio, Texas, for a purchase price of $54,250,000, plus standard
closing costs and adjustments. This acquisition was financed with cash and a new 15 year mortgage in the
amount of $36,500,000.
On August 10, 2015, Pure Multi, through the US REIT, acquired Amalfi Stonebriar, a multi-family apartment
community (“Amalfi”), located in Frisco, Texas, for a purchase price of $67,500,000, plus standard closing
costs and adjustments. This acquisition was financed with cash and a new 12 year mortgage in the amount of
$45,000,000.
64
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
On September 2, 2015, Pure Multi, through the US REIT, sold Oakchase Apartment Homes, a multi-family
apartment community (“Oakchase”), located in Arlington, Texas, for a sale price of $17,850,000, less standard
closing costs and adjustments. The mortgage payable, secured by Oakchase, was paid in full as of the same
date.
On September 30, 2015, Pure Multi, through the US REIT, acquired Brackenridge at Midtown, a multi-family
apartment community (“Brackenridge”), located in San Antonio, Texas, for a purchase price of $51,000,000,
plus standard closing costs and adjustments. This acquisition was financed with cash and a new 12 year
mortgage in the amount of $30,600,000.
On December 30, 2015, Pure Multi, through the US REIT, sold Windsong Apartments, a multi-family
apartment community (“Windsong”), located in Dallas, Texas, for a sale price of $22,000,000, less standard
closing costs and adjustments.
The gain (loss) on disposal of investment properties is calculated as follows:
For the year ended December 31,
Sales price
Disposition costs
Net proceeds
Fair value of investment properties
$
$
2015
67,800,000
(1,430,727)
66,369,273
(65,844,185)
2014
10,500,000
(720,522)
9,779,478
(10,014,899)
Gain (loss) on disposal of investment properties
$
525,088
$
(235,421)
The investment properties are pledged as security against the mortgages payable.
Investment properties are carried at fair value. As set out in note 3(P), in arriving at their estimates of fair
value, management and the independent appraisers have used their market knowledge and professional
judgment and have not relied solely on historical transactional comparisons.
Independent appraisals were performed by accredited appraisers with recognized and relevant professional
qualifications and with recent experience in the location and category of the investment property being valued.
Management reviews each appraisal and ensures that the assumptions used are reasonable and the final fair
value amount reflects those assumptions used in the determination of the fair market values of the properties.
Pure Multi does not obtain appraisals for each property at each reporting date. Where Pure Multi does not
obtain an appraisal for a specific investment property at the reporting date, management uses specific indicators
(i.e. market conditions, discount rate changes, etc.) and determines whether a change in fair value has occurred.
During the year ended December 31, 2015, Pure Multi obtained independent appraisals on all investment
properties held at December 31, 2015 (year ended December 31, 2014 – obtained independent appraisals on
all investment properties held at December 31, 2014). As disclosed in note 3(P), where appropriate,
management incorporated these appraisals in its determination of fair value for each of the investment
properties.
65
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
The significant assumptions made relating to the valuations of the investment properties are set out below:
December 31, 2015
December 31, 2014
Weighted
average
Range
Weighted
average
Range
Capitalization rate
5.50%
5.00% - 6.00%
5.90% 5.35% - 6.25%
5)
EQUITY-ACCOUNTED INVESTMENT
On October 1, 2013, Pure Multi, through the US REIT, acquired a 19.99% interest in Sunstone San Brisas LP
and a 20% interest in Sunstone San Brisas Apartments, LLC (collectively referred to as ”San Brisas”), located
in Chandler, Arizona, for a purchase price of $5,600,000, plus standard closing costs and adjustments. This
acquisition was financed with cash and the assumption of a mortgage in the amount of $2,755,967 bearing a
rate of interest of 5.63%. On August 28, 2014, Pure Multi acquired the remaining 80% interest in San Brisas,
resulting in a 100% ownership interest of the investment property. As a result of this transaction, as of August
28, 2014, Pure Multi’s interest in San Brisas was no longer measured using the equity method but instead the
consolidation method.
The tables below show Pure Multi’s investment in San Brisas, while measured measured using the equity
method:
Balance, December 31, 2013
Additions
Share of net loss
Equity value at time of acquisition of control
Balance, August 28, 2014
For the year ended December 31 2014 (from January 1, 2014 until acquisition
of remaining interest by Pure Multi on August 28, 2014)
Revenues
Operating expenses
Net rental income
Net finance expenses
Fair value adjustment to investment properties
Net income and comprehensive income
Pure Multi’s share of net income and comprehensive income, before
adjustments
Adjustment for Pure Multi’s net finance expenses related to joint venture
$ 2,830,709
-
(357,696)
(2,473,013)
$
-
$ 1,710,348
690,732
1,019,616
(453,183)
135,844
702,277
140,456
(498,152)
Pure Multi’s share of net loss and comprehensive loss, for the period
$ (357,696)
66
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
6)
MORTGAGE RESERVE FUND
The mortgage reserve fund consists of cash on deposit requested by the lenders to be retained in escrow to pay
for any repairs to the properties and certain costs. These funds will be released to pay the respective obligations
or once certain conditions are met, such as completion of repairs. The term of the mortgage reserve fund is
less than 12 months.
7)
CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is $21,705,731 of cash held in trust by an escrow agency. This cash
represents the net proceeds received from the sale of the Windsong investment property. This cash is readily
available and will be released in less than 12 months, therefore it is classified as a current asset.
8)
MORTGAGES PAYABLE
Valley Ranch
Prairie Creek (1)
Bear Creek
Prestonwood
Hackberry Creek
Deer Park
Fountainwood
Livingston
Walker Commons
Preserve
San Brisas
Park West
Amalfi
Brackenridge
Oakchase
Sunset Point
Nominal
interest rate
Year of
maturity
December 31, 2015 December 31, 2014
Face value
Face value
3.51%
4.07%
3.45%
3.46%
3.90%
4.21%
4.46%
3.51%
3.11%
3.26%
3.26%
4.02%
3.83%
3.72%
3.28%
3.54%
2022
2030
2019
2023
2028
2023
2023
2018
2019
2021
2021
2030
2027
2027
-
-
$ 13,680,000
46,372,718
32,080,000
8,670,000
29,500,000
16,370,676
12,734,504
15,517,539
28,470,000
24,600,000
16,980,000
36,500,000
45,000,000
30,600,000
-
-
$ 13,680,000
31,712,271
32,080,000
8,670,000
29,500,000
16,480,000
12,948,076
15,824,842
28,470,000
24,600,000
16,980,000
-
-
-
8,706,995
15,921,585
Total mortgages principal payable
Unamortized mortgage transaction costs
357,075,437
255,573,769
(2,873,370)
(2,048,215)
Unamortized mark to market mortgage adjustment
-
3,209,439
Total carrying value of mortgages payable
$ 354,202,067
$ 256,734,993
(1) On September 9, 2015, Pure Multi obtained new mortgage financing on Prairie Creek Villas in the amount
of $46,500,000, with a term of 15 years and bearing a fixed interest rate of 4.07%. The prior mortgage payable,
secured by Prairie Creek Villas, was paid in full as of the same date and the balance of the unamortized mark
to market mortgage adjustment of $2,737,202 was written off (note 13).
67
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
The mortgages payable are recorded at amortized cost and bear a weighted average effective interest rate of
3.72% as at December 31, 2015 (December 31, 2014 – 3.86%).
The mortgages payable are secured by charges on Pure Multi’s investment properties.
Principal repayments, as of December 31, 2015, based on scheduled repayments to be made on the mortgages
payable over the next five years and thereafter are as follows:
2016
2017
2018
2019
2020
Thereafter
$
1,870,858
2,510,654
17,714,902
64,298,911
4,505,456
266,174,656
$ 357,075,437
9)
CONVERTIBLE DEBENTURES
On August 7, 2013, Pure Multi issued 23,000 6.5% convertible unsecured subordinated debentures (each
a“6.5% convertible debenture”) at a price of $1,000 per 6.5% convertible debenture, for gross proceeds of
$23,000,000. The 6.5% convertible debentures mature of September 30, 2020 and are convertible at the
holder’s option at any time into Class A Units at a conversion price of $5.65 per Class A Unit, in accordance
with the terms of the trust indenture dated August 7, 2013. On or after September 30, 2016, but prior to
September 30, 2018, the 6.5% convertible debentures may be redeemed by Pure Multi, in whole or in part, at
a price equal to their principal amount plus accrued and unpaid interest thereon, provided the weighted average
trading price of the Class A Units for the 20 consecutive trading days, ending on the fifth trading day
immediately preceding the date on which notice of redemption is given, is at least 125% of the conversion
price. After September 30, 2018, the 6.5% convertible debentures may be redeemed by Pure Multi at any time.
During the year ended December 31, 2015, none of the 6.5% convertible debentures have been converted into
Class A Units. At December 31, 2015, $23,000,000 of the face value of the 6.5% convertible debentures was
outstanding.
The following summarizes the face and carrying values of the 6.5% convertible debentures at December 31,
2015:
Balance as at December 31, 2014
Amortization of transaction costs
Accretion of liability component
Convertible
Debentures
Face Value
$ 23,000,000
-
-
Liability
Component
Carrying Value
$ 19,876,109
155,350
288,431
Equity
Component
Carrying Value
$ 1,985,429
-
-
Balance as at December 31, 2015
$ 23,000,000
$ 20,319,890
$ 1,985,429
68
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
10)
PREFERRED UNITS OF SUBSIDIARY
During the year ended December 31, 2013, the US REIT issued 125 preferred units at $1,000 per preferred unit
for gross proceeds of $125,000. On consolidation, the preferred units of the US REIT are reflected as a liability
of Pure Multi.
The preferred units are non-voting preferred units. Unitholders holding preferred units are entitled to receive
dividends from the US REIT at a per annum rate equal to 12.5%, payable on June 30 and December 31 of each
year. Unitholders holding preferred units will be allocated such return in priority to any allocations or
distributions to all other classes and series of units of the US REIT. However, after payment of such return to
unitholders holding preferred units, preferred unitholders are not otherwise entitled to share in the income of
the US REIT.
The US REIT may redeem the preferred units at any time, for a price equal to $1,000 per preferred unit, plus
accrued and unpaid distributions.
Due to the fixed distributions and preferred treatment for preferred units, they meet the definition of a liability.
In addition, the Board does not expect to redeem any preferred units within the next year. Thus, the preferred
units are classified as non-current liabilities.
Pure Multi declared distributions of $15,625 during the year ended December 31, 2015 to the preferred
unitholders (year ended December 31, 2014 – $15,625).
11)
CREDIT FACILITY
On July 19, 2013, Pure Multi established a revolving credit facility with a lender in the amount of $9,900,000.
On December 11, 2015, Pure Multi paid its outstanding balance on the credit facility and extinguished the
facility on the same date. The revolving credit facility was interest bearing at a variable interest rate based at
2.00% plus the London Interbank Offered Rate (“LIBOR”). The revolving credit facility was secured by a
charge in respect of Windsong Apartments prior to its extinguishment.
Revolving credit facility
Less: Line of credit outstanding
Remaining unused credit facility
December 31, 2015 December 31, 2014
9,900,000
$
(5,546,485)
-
-
$
$
-
$
4,353,515
The amount payable on the credit facility at December 31, 2014 was $5,474,301. This amount is net of the
related unamortized transaction costs of $72,184, which were amortized, on a straight-line basis, over the term
of the credit facility.
12)
PARTNERS’ CAPITAL
a)
Limited Partners and General Partner
The capital of Pure Multi consists of an unlimited number of units of Pure Multi and the interest held by the
Governing GP. The Governing GP has made a capital contribution of $20 to Pure Multi and has no further
obligation to contribute capital.
69
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
On May 30, 2012, the Managing GP subscribed for 200,000 Class B units (each a “Class B Unit”) of Pure
Multi, at a price of $5.00 per Class B Unit, for gross proceeds to Pure Multi of $1,000,000, which initially
entitles the Class B Unitholders to a 5% interest in Pure Multi. Pure Multi did not issue any additional Class
B Units subsequent to this.
From the date of formation on May 8, 2012, to December 31, 2014, Pure Multi issued 34,834,824 Class A
Units for gross proceeds of $170,743,517, less offering costs.
On May 8, 2015, Pure Multi completed a public offering of 6,900,000 Class A Units, on a bought deal basis,
at a price of $5.10 per Class A Unit for gross proceeds of $35,190,000, less offering costs.
On October 27, 2015, 55,000 Class A Unit purchase warrants (each a “Warrant”) were exercised for 55,000
Class A Units, at an exercise price of $5.15, for gross proceeds of $283,250. Pure Multi issued the 55,000
Class A Units from treasury.
On December 11, 2015, Pure Multi completed a public offering of 7,250,000 Class A Units, on a bought deal
basis, at a price of $5.40 per Class A Unit for gross proceeds of $39,150,000, less offering costs.
Pure Multi is authorized to issue an unlimited number of Class A Units and Class B Units.
b) Other Equity Items
December 31, 2015
December 31, 2014
Convertible
Debentures Equity
Component
(note 9)
Warrants
Total
Convertible
Debentures Equity
Component
(note 9)
Warrants
Total
$
1,985,429
$
697,595 $ 2,683,024
$ 1,985,429
$
-
$ 1,985,429
-
-
-
-
(17,456)
(17,456)
-
-
697,595
697,595
-
-
$
1,985,429
$
680,139 $ 2,665,568
$ 1,985,429
$
697,595 $ 2,683,024
Balance at
beginning of year
Issuance of
warrants, net of
offering costs
Warrants
exercised, net of
offering cost
Balance at
end of year
During the year ended December 31, 2014, Pure Multi issued 2,197,912 Warrants. Each Warrant entitles the
holder to acquire one additional Class A Unit from Pure Multi at a price of $5.15 per Class A Unit until
November 20, 2016. During the year ended December 31, 2015, 55,000 Warrants were exercised and
converted into Class A units. As at December 31, 2015, Pure Multi had outstanding Warrants as follows:
Number of Warrants
2,142,912
Exercise Price
$5.15
Expiry
November 20, 2016
70
13)
INTEREST EXPENSE
Interest expense consists of the following:
Mortgage interest
Credit facility interest
Convertible debenture interest
Amortization of transaction costs and accretion of
convertible debentures
Amortization and write-off of mark to market mortgage
adjustment (1)
Mortgage prepayment expense (1)
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
Year ended
December 31, 2015
$ 11,156,074
112,402
1,495,000
$
December 31, 2014
8,815,187
134,284
1,495,104
1,255,192
(3,209,439)
5,188,836
586,744
(687,895)
-
$ 15,998,065
$ 10,343,424
(1) On September 9, 2015, Pure Multi obtained new mortgage financing on Prairie Creek Villas and incurred a
mortgage prepayment expense of $5,188,836, related to paying off its prior mortgage. This prepayment
expense was partially offset by the write-off of the unamortized portion of the market to market mortgage
adjustment in the amount of $2,737,202, on the same date.
14)
NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
Cash provided by (used in)
Amounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Unearned revenue
Rental deposits
Year ended
December 31, 2015
$ (325,302)
(368,851)
(1,676,070)
(93,794)
202,435
$
December 31, 2014
(453,067)
(137,879)
2,010,682
260,807
243,434
$
(2,261,582)
$
1,923,977
15)
CAPITAL MANAGEMENT
Pure Multi defines capital as the aggregate of partners’ capital, preferred units of subsidiary and long term debt.
Pure Multi’s objectives in managing capital are to maintain a level of capital that complies with investment
and debt restrictions pursuant to the initial offering prospectus; complies with existing debt covenants, if any;
funds its business strategies; and builds long-term partners’ value. Pure Multi’s capital structure is approved
by the board of directors of the Governing GP through its periodic reviews.
71
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
The LP Agreement provides for a maximum indebtedness level of up to 70% of the gross book value. The
term "indebtedness" means any obligation of Pure Multi for borrowed money (including the face amount
outstanding under any convertible debentures and any outstanding liabilities of Pure Multi arising from the
issuance of subordinated notes but excluding any premium in respect of indebtedness assumed by Pure Multi
for which Pure Multi has the benefit of an interest rate subsidy), but excludes trade accounts payable,
distributions payable to unitholders, preferred units of subsidiary, accrued liabilities arising in the ordinary
course of business and short-term acquisition credit facilities. The LP Agreement defines “gross book value”
as the book value of the assets of Pure Multi plus the amount of accumulated depreciation and amortization in
respect of such assets (and related intangible assets), the amount of future income tax liability arising out of
indirect acquisitions and excluding the amount of any receivable reflecting interest rate subsidies on any debt
assumed by Pure Multi. Pure Multi’s indebtedness is 54.6% as at December 31, 2015 (December 31, 2014 –
57.9%). Pure Multi was in compliance with all restrictions during the years ended December 31, 2015 and
2014.
There were no changes in Pure Multi’s approach to capital management during the year ended December 31,
2015. The capital structure consisted of the following components at December 31, 2015 and 2014:
Capital
Mortgages payable
Convertible debentures
Preferred units of subsidiary
Partners’ capital
December 31, 2015
December 31, 2014
$ 354,202,067
20,319,890
125,000
304,274,226
$ 256,734,993
19,876,109
125,000
197,797,807
Total capital
$ 678,921,183
$ 474,533,909
16)
FINANCIAL INSTRUMENTS
Fair value of financial instruments
For certain of Pure Multi’s financial instruments, including cash and cash equivalents, amounts receivable,
mortgage reserve fund, credit facility, and accounts payable and accrued liabilities, the carrying amounts
approximate the fair values due to the short-term nature of the instruments.
The fair values of the mortgages payable and preferred units have been calculated based on discounted future
cash flows using discount rates that reflect current market conditions for instruments having similar terms and
conditions. Discount rates are either provided by lenders or are observable in the open market. The fair value
of the convertible debentures has been calculated using quoted prices in active markets.
The following table presents the carrying amounts and fair values of Pure Multi’s non-current financial
instruments:
Mortgages payable
Preferred units of subsidiary
Convertible debentures
December 31, 2015
Carrying
Amount
$ 354,202,067
125,000
20,319,890
Fair Value
$ 366,039,986
125,000
23,000,000
December 31, 2014
Carrying
Amount
$ 256,734,993
125,000
19,876,109
Fair Value
$ 262,022,675
125,000
22,885,000
72
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
Financial risk management
The board of directors of the Governing GP has the overall responsibility for the establishment and oversight
of Pure Multi’s risk management framework. Pure Multi’s risk management policies are established to identify
and analyze the risks faced by Pure Multi, to set appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and in response to Pure Multi’s activities.
In the normal course of business, Pure Multi, through the US REIT, is exposed to a number of risks that can
affect its operating performance. These risks include, but are not limited to, credit risk, interest rate risk,
liquidity risk, currency risk and environmental risk. These risks, and the actions taken to manage them, are as
follows:
a. Credit risk
Credit risk is the risk of financial loss to Pure Multi if a tenant, customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from Pure Multi’s receivables
from tenants.
Pure Multi’s exposure to credit risk is influenced mainly by the individual characteristics of each tenant.
Pure Multi minimizes the risk by checking tenants’ credit histories, requesting security deposits and
initiating a prompt collection process. All trade receivables are current.
b. Interest rate risk
Interest rate risk arises from the possibility that the value of, or cash flows related to, a financial instrument
will fluctuate as a result of changes in market interest rates. Pure Multi is exposed to interest rate risk from
the interest rate differentials between the market rate and the rates used on these financial instruments.
Pure Multi manages its financial instruments and interest rate risks based on its cash flow needs and with a
view to minimizing interest expense. Whenever possible, Pure Multi, through the US REIT, tries to secure
fixed interest rate mortgages. As all of the mortgages payable bear interest at fixed rates, Pure Multi does
not face significant interest rate risk.
c. Liquidity risk
Liquidity risk is the risk that Pure Multi will not be able to meet its financial obligations as they fall due.
Real estate property investments tend to be relatively illiquid, with the degree of liquidity generally
fluctuating in relation to demand for and the perceived desirability of such investments. Such illiquidity
may tend to limit Pure Multi’s ability to vary its portfolio promptly in response to changing economic or
investment conditions. If Pure Multi were required to liquidate the investment properties, the proceeds to
Pure Multi might be significantly less than the aggregate carrying value of such property.
Pure Multi’s approach to managing liquidity is to ensure that it will have sufficient cash available to meet
its liabilities when due. In addition, Pure Multi intends to refinance any mortgages which mature within
six months.
The following table provides the future non-discounted scheduled payments of financial liabilities,
including estimated interest payments:
73
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
Year ended December 31,
2016
2017
2018
2019
2020 and
thereafter
Mortgages payable (principal and
interest)
Convertible debentures payable
(principal and interest)
Preferred units of subsidiary (principal
and interest)
Accounts payable and accrued
liabilities
$ 15,219,689
$ 15,756,027
$ 30,685,613
$ 76,152,422
$ 337,941,459
1,495,000
1,495,000
1,495,000
1,495,000
24,122,274
15,625
15,625
15,625
15,625
140,625
10,409,972
-
-
-
-
Total
$ 27,140,286
$ 17,266,652
$ 32,196,238
$ 77,663,047
$ 362,204,358
d. Currency risk
Pure Multi is exposed to minimal currency risk since only a small portion of the expenses is in Canadian
dollars.
e. Environmental risk
Pure Multi, through the US REIT, is subject to various federal, state and municipal laws relating to the
environment. On acquisition, Pure Multi conducts environmental inspections of its properties and
appropriate testing by qualified environmental consultants when required to ensure compliance with all
applicable environmental laws.
17)
RELATED PARTY TRANSACTIONS AND COMMITMENTS
Managing GP
Pure Multi is related to the Managing GP, by virtue of having an officer and director in common (Stephen
Evans).
During the year ended December 31, 2015, Pure Multi declared distributions to the Managing GP in the amount
of $790,515 (year ended December 31, 2014 - $595,945). Included in accounts payable and accrued liabilities
at December 31, 2015 was $nil (December 31, 2014 - $495,630).
Sunstone U.S. Opportunity (No. 2) Realty Trust
Pure Multi is related to Sunstone U.S. Opportunity (No. 2) Realty Trust, by virtue of having officers and
directors in common (Stephen Evans, Robert King and James Redekop).
There have been no related party transactions between Pure Multi and Sunstone U.S. Opportunity (No. 2)
Realty Trust during the year ended December 31, 2015. During the year ended December 31, 2014, Pure Multi
acquired the following investment properties from Sunstone U.S. Opportunity (No. 2) Realty Trust:
• Walker Commons acquired on June 27, 2014 for a purchase price of $43,800,000;
•
•
50% interest in Preserve acquired on August 28, 2014 for a purchase price of $20,500,000; and
80% interest in San Brisas acquired on August 28, 2014 for a purchase price of $22,640,000.
74
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
Pure Multi negotiated the purchase price of the properties above with reference to independently prepared third
party appraisals.
Pure Multi paid to Sunstone U.S. Opportunity (No. 2) Realty Trust an amount equal to the fair market value
adjustment that Pure Multi would have incurred if it had assumed the mortgage as part of the acquisition. The
total amount paid, related to these adjustments, to Sunstone U.S. Opportunity (No. 2) Realty Trust during the
year ended December 31, 2014 was $2,926,438.
Sunstone U.S. Opportunity (No. 3) Realty Trust
Pure Multi is related to Sunstone U.S. Opportunity (No. 3) Realty Trust, by virtue of having officers and
directors in common (Stephen Evans, Robert King and James Redekop).
There have been no related party transactions between Pure Multi and Sunstone U.S. Opportunity (No. 3)
Realty Trust during the year ended December 31, 2015. During the year ended December 31, 2014, Pure Multi
acquired the following investment property from Sunstone U.S. Opportunity (No. 3) Realty Trust:
•
50% interest in Preserve acquired on August 28, 2014 for a purchase price of $20,500,000.
Pure Multi negotiated the purchase price of the property above with reference to an independently prepared
third party appraisal.
Asset Management Agreement
The Managing GP, pursuant to the Asset Management Agreement, will provide asset management,
administrative and reporting services to Pure Multi as its managing general partner. The Asset Management
Agreement also requires the Managing GP to provide Pure Multi, at no cost, with support services consisting
of office space and equipment and the necessary clerical and secretarial personnel for the administration of its
day-to-day activities. The Asset Management Agreement may be terminated by Pure Multi at any time upon
the occurrence of certain events of default and at any other time, without bonus or penalty, upon not less than
60 days notice. In lieu of the fees typically associated with a third party asset management agreement, the
Managing GP will only be entitled to a reimbursement of any reasonable costs and expenses (including legal
and audit costs but excluding personnel costs) that it incurs providing asset management services to Pure Multi
and will not be entitled to any other remuneration or compensation for its services.
Tipton Asset Group, Inc. (“Tipton”) is the property manager for Pure Multi. Pure Multi is related to Tipton by
virtue of having an officer and director in common with a subsidiary of Pure Multi (Bryan Kerns). Tipton
charged $1,764,027 in property management fees during the year ended December 31, 2015 (year ended
December 31, 2014 - $1,454,305). Included in accounts payable and accrued liabilities at December 31, 2015
was $nil (December 31, 2014 - $nil).
Compensation
Currently, the directors of the Governing GP who are not affiliated with or employees of the Managing GP
receive annual compensation, in addition to fees for attending meetings of the directors or any committee, and
acting as committee chairs and members. As well, the Governing GP will indirectly reimburse such directors
for any out of pocket expenses, including out of pocket expenses for attending meetings. Pure Multi will
reimburse the Governing GP for such amounts. In addition, Pure Multi will obtain insurance coverage for such
directors. Compensation will be reviewed on an annual basis, giving consideration to Pure Multi’s growth and
the extent of its portfolio. The amount incurred during the year ended December 31, 2015 was $210,293 (year
ended December 31, 2014 - $96,797).
75
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
18)
LEASES
Pure Multi, through the US REIT, has entered into lease agreements on its investment properties. The
residential property leases typically have lease terms of 1 to 12 months. Future minimum rental revenue to be
earned under non–cancellable operating leases is $27,215,236 as at December 31, 2015 (December 31, 2014 -
$22,072,084).
19)
FAIR VALUE MEASUREMENT
Pure Multi measures investment properties at fair value at each balance sheet date, the fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants, acting at arms-length, at the measurement date under current market conditions. In certain
circumstances, the initial fair value may be based on other observable current market transactions, without
modification or on a valuation technique using market based inputs.
Fair value measurements recognized in the statement of financial position are categorized in accordance with
the following levels:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Quoted prices in active markets for similar assets or liabilities or valuation techniques where
significant inputs are based on observable market data.
• Level 3: Valuation techniques for which any significant input is not based on observable market data.
The fair value hierarchy of assets and liabilities measured at fair value on the consolidated statement of financial
position or disclosed in the notes to the financial statements is as follows:
(000’s)
Investment properties
Mortgages payable
Preferred units of subsidiary
Convertible debentures
23,000
December 31, 2015
December 31, 2014
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
-
-
-
$
-
$ 613,682
$
366,040
125
-
-
-
-
-
-
-
22,885
$
-
$ 468,518
262,023
125
-
-
-
-
There have been no transfers between the levels during the year.
As disclosed above, the fair value methodology for Pure Multi’s investment properties is considered Level 3,
as significant unobservable inputs are required to determine fair value. Refer to note 4, for a description of
how management determines fair value and for further details of the average capitalization rates and ranges for
investment properties, including equity-accounted investees.
Investment properties as at December 31, 2015 and 2014 have been valued using the overall capitalization rate
(“OCR”) method, an income based approach, whereby the stabilized net operating income is capitalized at the
requisite OCR.
76
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
Valuations determined by the OCR method are most sensitive to changes in capitalization rates. The table
below summarizes the sensitivity of the fair value of investment properties to changes in the capitalization rate
at December 31, 2015:
Rate sensitivity
+ 75 basis points
+ 50 basis points
+ 25 basis points
Base rate (5.50%)
- 25 basis points
- 50 basis points
- 75 basis points
OCR Sensitivity
Fair value
Change in fair value
$
539,850,418
$
(73,831,457)
562,397,913
586,917,834
613,681,875
643,014,251
675,305,096
711,028,203
(51,283,962)
(26,764,041)
-
29,332,376
61,623,221
97,346,328
20)
DILUTED EARNINGS PER CLASS A UNIT
The components of diluted earnings per share are summarized in the following tables:
Basic net income and comprehensive income
Dilutive interest expense (1)
Diluted net income and comprehensive income
Diluted net income and comprehensive income
allocated to Class A unitholders
Year ended
December 31, 2015
$ 51,179,380
1,938,780
53,118,160
December 31, 2014
$ 41,949,277
1,707,492
43,656,769
$ 50,462,252
$ 41,473,931
Notes:
(1) Dilutive interest expense includes the removal of the interest expense related to the dilutive 6.5% convertible
debentures.
Weighted average number of Class A units - basic
Dilutive effect of the conversion of convertible
debentures using the treasury stock method (1)
Weighted average number of Class A units - dilutive
Notes:
Year ended
December 31, 2015
39,761,071
December 31, 2014
29,512,727
4,070,796
43,831,867
4,070,796
33,583,523
(1) Conversion of 6.5% convertible debentures based on exercise price of $5.65 per Class A Unit.
77
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
Expressed in United States dollars
21)
SUBSEQUENT EVENTS
a) Pure View at TPC (“Pure View”)
On March 1, 2016, Pure Multi, through the US REIT, acquired Pure View, a multi-family apartment
community located in San Antonio, Texas, for a purchase price of $61,000,000, plus standard closing costs
and adjustments. This acquisition was financed with cash on hand and proceeds from a new mortgage
financing.
b) Pure Estates at TPC (“Pure Estates”)
On March 1, 2016, Pure Multi, through the US REIT, acquired Pure Estates, a multi-family apartment
community located in San Antonio, Texas, for a purchase price of $56,500,000, plus standard closing costs
and adjustments. This acquisition was financed with cash on hand and proceeds from a new mortgage
financing.
78
MANAGEMENT
STEPHEN EVANS
Director and Chief Executive Officer
SAMANTHA ADAMS
Vice President
SCOTT SHILLINGTON, CA
Chief Financial Officer
ANDREW GREIG
Director of Investor Relations
DIRECTORS
ROBERT KING
Lead Independent Director
JAMES REDEKOP
Independent Director
DOUGLAS SCOTT, CA
Independent Director
JOHN O’NEILL
Independent Director
JAMES SPEAKMAN
Director
Corporate Legal Counsel
FRASER BERRILL
Independent Director
80
Fountainwood Apartments, Dallas, TX
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T:
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www.puremultifamily.com
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Plano, Texas USA 75024
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INVesTOr relATIONs
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