Pure Multi-Family REIT LP
2017 Annual Report
Investing in the Future
Park 28, Phoenix, Arizona
PURE MULTI-FAMILY REIT LP ANNUAL REPORT 2017
aT a GlanCe
January
Acquired Pure Creekside Apartments
Acquired Lansbrook at Twin Creeks
February
Filed USD$500 Million Base Shelf Prospectus
april
Raised CAD$92 Million Bought Deal
Sherry Tryssenaar Joins the Board
May
Commenced Property Management Internalization
June
Acquired Park 28
Acquired Pinnacle at Union Hills
Raised CAD$92 Million Bought Deal
July
Acquired PURE at La Villita
auGusT
Tropical Storm Harvey Hits Houston
sepTeMber
Filed Normal Course Issuer Bid
OCTOber
Acquired PURE Farmers Market
nOveMber
Acquired PURE Fillmore Apartments
DeCeMber
Completed Property Management Internalization
Table of Contents
Letter to Unitholders ................................................................. 3
2017 Strategic Highlights .......................................................... 4
Deleveraging the Balance Sheet................................................ 6
Property Management Internalization ...................................... 8
An Institutional Quality Portfolio .............................................. 9
Portfolio Strategy .................................................................... 10
Feature Property: PURE Fillmore Apartments .......................... 11
Feature Property: PURE Farmers Market .................................. 12
Financial Highlights ................................................................ 13
Outlook ................................................................................... 15
Management Discussion & Analysis ........................................ 16
Consolidated Financial Statements ......................................... 62
Unitholder Information & Board of Directors ........................... 94
Management Team & 2017 Distributions ................................ 95
All currency is in USD unless otherwise stated.
1
ANNUAL REPORT PURE MULTI-FAMILY REIT LP Over the course of 2017, we
undertook significant steps to
establish our fully-internalized,
vertically integrated real
estate platform.
Top to bottom: PURE Creekside at Onion Creek, Austin, Texas
Top to bottom: Pinnacle at Union Hills, Phoenix, Arizona
Lansbrook at Twin Creeks, Dallas, Texas
Park 28, Phoenix, Arizona
PURE at La Villita, Dallas, Texas
PURE Farmers Market, Dallas, Texas
PURE Fillmore Apartments, Phoenix, Arizona
2
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
letter to unitholders
Dear Fellow Unitholders,
2017 was a year of transformation for Pure Multi Family
REIT LP, during which we expanded and high-graded
our portfolio, improved our balance sheet, internalized
property management, and added key executives to
our management team.
As a team, we are excited about the continued growth
of our platform. Our goal is to invest in the best quality
apartment assets, situated
in the most dynamic
locations, in the some of the strongest growth cities in
the U.S. Sunbelt.
As part of our internalization process, we also invested
in our future by upgrading our property and asset
management software systems, which provides greater
real-time analysis of all financial metrics throughout
our portfolio. Our new systems
include business
intelligence and market analytics tools that provide a
clearer view of trends within our sub-markets as they
are developing, rather than looking in the rear-view
mirror after they have occurred.
We also continued to expand and high-grade our
portfolio in 2017. Choosing strong “path of growth”
locations, we expanded our footprint in the Phoenix
market with the acquisition of three assets totaling
646 units. We entered the Austin, Texas market with
the addition of a new 276 unit community, and we
continued to add to our Dallas holdings with three
more property acquisitions totaling 934 units.
One of our key goals for 2017 was to improve our
balance sheet. The debt to gross book value ratio
across our portfolio was 53.4% as at December 31,
2017, representing an improvement of 180 basis points,
compared to December 31, 2016. We have made a
conscious effort to decrease our leverage ratios on new
acquisitions. Of the seven acquisitions made during
2017, total debt of $162 million was used to help fund
the purchase prices, representing a leverage ratio of
49.3%. Although deleveraging can create a negative
impact on payout ratios in the near term, we believe
a conservative debt strategy is prudent for long term
success in a rising interest rate environment.
We recognize that we are in a ‘people business’
providing homes and services
for over 12,000
residents. Our people, the Pure Management Team,
take this responsibility very seriously in striving to
provide 5-Star Service. Our property management
team has developed an acronym of our PURE
name that captures our commitment in this area –
Providing Ultimate Resident Experience!
During mid-2017, a short-term over-supply in some of
our submarkets resulted in a slight dip in occupancy
rates and an increase in rental concessions. We view
these challenges as temporary pot-holes on the road,
nonetheless we must steer around them as we continue
on our path of growth and enhancing Unitholder value.
As we are situated in strong growth Sunbelt markets,
we believe that rental concessions will be short-lived
and our rental growth rates will return to be near the
top of our peer set in the Canadian REIT sector.
This year, Ms. Sherry Tryssenaar joined our board
of directors and brought extensive experience and
expertise to her position of Audit Chair. We would like
to take this opportunity to recognize Mr. Douglas Scott,
one of our founding directors, who retired in 2017. Mr.
Scott provided a great deal of leadership, counsel, and
support to Pure Multi Family REIT over our first five
years, and we wish him all the best for the future.
As we look forward to 2018, the fundamentals of our
business remain strong. The U.S. unemployment rate
has trended down, consumer confidence is strong,
and dramatic U.S. tax cuts are providing fertile ground
for continued economic growth that we believe will
benefit our portfolio. Our team is engaged and excited
to continue growing Pure Multi Family REIT LP with a
constant focus on enhancing Unitholder value.
In conclusion, I would like to thank our Unitholders for
their support, and our over 170 employees for their
hard work and dedication.
Yours truly,
”
“
Steve Evans
Stephen J. Evans
Chief Executive Officer
3
ANNUAL REPORT PURE MULTI-FAMILY REIT LP 2017 strategic Highlights
In 2017, we acquired seven multi-family properties
comprised of 1,856 residential units for a combined
purchase price of $328.3 million.
We announced a new secured credit facility totaling
$50 million, including an accordion feature that allows
for increased borrowing capacity of up to $100 million.
The new acquisitions had an average year of
construction of 2010, improving our overall portfolio’s
average year of construction to 2007.
December 31, 2017
investment properties ................................ 22
residential units ........................................ 7,085
average unit size ........................................ 910 sf
acres .......................................................... 351
Weighted average physical Occupancy (1) ...... 93.7%
Weighted average leased Occupancy (1) ........ 95.0%
average year of Construction ....................... 2007
Fair Market value ........................................ $1.13 billion
Debt to Gross book value ............................. 53.4%
average rent per Occupied unit (1) ................ $1,267
Weighted average interest rate .................. 3.72%
Weighted average Mortgage Term ............... 8.9 years
(1) For the month of December 2017.
4
PURE View at TPC, San Antonio, Texas
PURE MULTI-FAMILY REIT LP ANNUAL REPORT 5
ANNUAL REPORT PURE MULTI-FAMILY REIT LP Deleveraging the balance sheet
The Debt-to-Gross Book Value Ratio across Pure Multi-Family’s portfolio was 53.4% as at December 31, 2017,
representing an improvement of 180 basis points compared to December 31, 2016. Management has made a
conscious effort to decrease leverage on new acquisitions to improve overall portfolio leverage ratios as Pure
Multi-Family continues to pursue growth. Pure Multi-Family incurred total debt of $162 million, representing a
leverage ratio of 49.3%, to partially fund the seven acquisitions completed during 2017.
'
,
s
0
0
0
0
0
0
$
Debt to Gross Book Value
1,400
1,200
1,000
800
600
400
200
-
66%
63%
60%
57%
54%
51%
48%
45%
2012
2013
2014
2015
2016
2017
Debt
GBV
Debt/GBV
Although deleveraging has created a negative impact on payout ratios in the short term, management believes
it is the fiscally responsible approach to ensure our long term stability and success.
6
The Boulevard at Deer Park, Houston, Texas
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Deleveraging the balance sheet
Pure Multi-Family has strategically negotiated low leverage fixed rate mortgages featuring 7, 10, 12 and 15 year
terms in order to stagger mortgage maturities. Across our portfolio our weighted average term to maturity is 8.9
years, which is amongst the longest average terms of Canadian REITs. Currently our mortgage weighted average
interest rate is 3.72% and 87.7% of our mortgages mature after 2020.
100.0%
80.0%
Mortgage Profile
4.32%
3.71%
60.0%
3.29%
3.26%
3.38%
40.0%
20.0%
0.0%
11.5%
0.8%
2018
1.2%
2020
7.6% 6.5% 5.5%
11.0%
1.3% 1.4%
2022
2024
2026
Thereafter
5.00%
4.50%
4.00%
3.83% 3.83%
3.50%
37.7%
15.5%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Principal
Scheduled Principal
Weighted Average Rate - Expiry
San Brisas, Phoenix, Arizona
7
ANNUAL REPORT PURE MULTI-FAMILY REIT LP property Management internalization
By December 2017, Pure Multi-Family completed the internalization of our
property management function. Although there were some duplication
of costs incurred during the transition phase, all properties were
successfully transitioned in-house from external property management
during the year.
Our internal, vertically-integrated, property management platform will
enable us to build our brand and expand our presence in our target
markets, while enhancing operational efficiencies across our platform.
As of October 1, 2017, we ceased paying external property management
fees. We estimate the internal cost of our property management function
to be approximately 2.5% of revenues on our current portfolio moving
forward, a significant savings from the historical 3% of revenues which
was previously paid to an external party.
Management believes the internalization of the property management
function will be accretive to unitholders and drive per unit cash flow
growth over the long-term.
as we maintain our
commitment to our team to
provide a positive, exciting
and supportive work
environment, engendering
enthusiasm for our company
becomes increasingly self-
fulfilling. This permits us
to focus on executing and
delivering solid, measurable
results that benefit all
unitholders.
8
Park at West Ave, San Antonio, Texas
PURE MULTI-FAMILY REIT LP ANNUAL REPORT an institutional Quality portfolio
Acquisition
Date
Year of
Construction
Units
Average Unit
Size (sf)
Property
Location
Stoneleigh Valley Ranch
Prairie Creek Villas
Stoneleigh at Bear Creek
Vistas at Hackberry Creek
Fountainwood Apts
The Preserve at Arbor Hills
Amalfi Stonebriar
Avenue on Fairmount
Lansbrook at Twin Creeks
PURE at La Villita
PURE Farmers Market
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
DFW, TX
Submarket
Irving, TX
18-Jul-12
Richardson, TX
11-Oct-12
Euless, TX
Irving, TX
Euless, TX
Plano, TX
Frisco, TX
Dallas, TX
Allen, TX
Irving, TX
Dallas, TX
31-Oct-12
6-Jun-13
30-Aug-13
28-Aug-14
10-Aug-15
14-Sep-16
27-Jan-17
11-Jul-17
2-Oct-17
1999
1997
2004
1984
1986
1998
2014
2015
2002
2007
2016
210
464
436
560
288
330
395
368
288
306
340
Totals & Weighted Averages
2005
3,985
The Boulevard at Deer Park
Houston, TX
Deer Park, TX
21-Jun-13
Broadstone Walker Commons
Houston, TX
League City, TX
27-Jun-14
Totals & Weighted Averages
Park at West Ave
San Antonio, TX
San Antonio, TX
7-May-15
Brackenridge at Midtown
San Antonio, TX
San Antonio, TX
30-Sep-15
PURE View at TPC
PURE Estates at TPC
Totals & Weighted Averages
San Antonio, TX
San Antonio, TX
1-Mar-16
San Antonio, TX
San Antonio, TX
1-Mar-16
San Brisas
Park 28
Phoenix, AZ
Chandler, AZ
Phoenix, AZ
Phoenix, AZ
Pinnacle at Union Hills
Phoenix, AZ
Phoenix, AZ
28-Aug-14 &
1-Oct-13
9-Jun-17
15-Jun-17
PURE Fillmore Apartments
Phoenix, AZ
Phoenix, AZ
29-Nov-17
Totals & Weighted Averages
PURE Creekside at Onion Creek
Austin, TX
Austin, Texas
25-Jan-17
Totals & Weighted Averages
Portfolio Totals & Weighted Averages
Portfolio as at December 31, 2017.
2000
2008
2005
2014
2014
2014
2007
2012
1996
2015
1996
2016
2006
2016
2016
2007
216
352
568
360
282
416
344
1,402
208
152
264
230
854
276
276
7,085
991
1,000
962
777
795
940
811
829
961
918
824
886
934
928
930
898
852
943
1,135
960
1,006
826
1,019
934
959
828
828
910
9
ANNUAL REPORT PURE MULTI-FAMILY REIT LP Although there are long-term benefits of owning
and operating high-quality, newly constructed
properties, we experienced some
initial short-
term challenges. As we have encountered over the
last few quarters, occupancy rates of the newly
constructed properties still in stabilization tend to
be at a slightly decreased occupancy level compared
to our portfolio average, as they transition through a
stabilization period.
Once fully stabilized, which we anticipate being
anywhere from a few months to 18 months from
acquisition date, we expect these newer-built assets
to be operating at or above our portfolio average
occupancy rates. Newly constructed assets produce
higher rental rates and lower capital expenditures,
leading to improved net rental income margins.
portfolio strategy
Since 2012, Pure Multi-Family’s strategy has been to
acquire a high-quality apartment portfolio located in
the strongest growth markets within the U.S. Sunbelt
region.
Pure Multi-Family employs 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 generating top-line revenue
growth and potentially reducing tenant turnover.
Our diligent and active management style includes
re-positioning our properties through value-add
initiatives. We look to opportunistically divest select
assets from time to time. Our goal is to renew our
portfolio by acquiring newer, higher-quality assets
to improve the quality of our overall portfolio.
During 2017, we added seven high-quality, resort-
style properties to the Pure Multi-Family portfolio,
one of which is located in a new market for us, Austin,
Texas. With the addition of Austin to our current
markets, we now have expanded our presence to five
strong markets within Texas and Arizona.
The acquisitions that we completed in 2017 helped
to renew our portfolio as the seven properties
acquired had an average year of construction of
2010, bringing our overall portfolio’s average year of
construction to 2007 at the end of the year.
Avenue on Fairmount, Dallas, Texas
Acquired
PURE Creekside &
Lansbrook at Twin Creeks
Acquired
Park 28 &
Pinnacle at Union Hills
Acquired
PURE Farmers Market
Acquired
PURE at La Villita
Acquired
PURE Fillmore
2017 Jan
10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
PURE MULTI-FAMILY REIT LP ANNUAL REPORT FeaTure prOperTy:
pure Fillmore apartments, phoenix, arizona
On November 29, 2017, we acquired Fillmore
Apartments located in Phoenix, Arizona for a purchase
price of $55.95 million. Upon closing, the property
was rebranded as PURE Fillmore Apartments.
Developed in 2016, PURE Fillmore is an institutional-
quality multi-family asset comprising 230 units with
an average unit size of 934 square feet. The property
is located in the path of growth on four acres near
Fillmore Street and Seventh Avenue and offers
residents excellent walkability and bike access to the
many amenities found in Downtown Phoenix.
Central and Downtown Phoenix continue on a
heightened pace of redevelopment as the city looks
to revitalize and transform Downtown Phoenix into a
desirable urban living environment, by adding a wide
array of employment, transportation, entertainment,
and education services.
PURE Fillmore is ideally situated between Downtown
Phoenix and Roosevelt Row, Phoenix’s renowned
Arts District. PURE Fillmore is a convenient two
minute walk from the community’s airport shuttle
service/Bee Line Transportation, and within a five
minute stroll from popular specialty colleges Rio
Salado and Southwest School of Woodworking,
forming a vibrant and innovative community. The
PURE Fillmore property itself features artwork from
local artists and architectural features that honour
the heritage and style of this iconic neighbourhood.
PURE Fillmore offers several unique and state-of-the-
art features and amenities. Many units also come with
electronic entry locks, private balconies and covered
parking. High tech packages are also available
in select suites featuring audio visual upgrades
including wall speakers and Bluetooth capabilities.
PURE Fillmore features a rooftop
lounge with
gorgeous views of downtown Phoenix, pet areas
featuring dog washing stations and a fenced
dog run, a club room with a 13-foot television, a
demonstration kitchen, ultra-luxe pool, spa, cabanas
with towel service, bike shop, gas grills, and an on-
site coffee shop which delivers food and beverage
items directly to residents in their apartment units,
or to the pool deck, as needed.
11
ANNUAL REPORT PURE MULTI-FAMILY REIT LP FeaTure prOperTy:
pure Farmers Market, Dallas, Texas
On October 2, 2017, we acquired the Farmers Market
Apartments for a purchase price of $66.35 million.
Upon closing, we rebranded the property as PURE
Farmers Market.
PURE Farmers Market is an immaculate Class “A”
institutional quality asset in a prime core location,
featuring market-leading amenities such as gas
stoves, bicycle rentals, four electric car charging
stations, stained concrete floors and twelve foot
ceilings on all first floor units, 67 package delivery
lockers, 17 private yards, a state-of-the-art fitness
center with TRX equipment, spa showers, wine racks,
and more.
PURE Farmers Market also offers a true Live, Work,
Play experience as it is within ten minutes of the
Dallas Central Business District (“CBD”), and is within
walking distance of some of Dallas’ most popular
restaurants, bars, and entertainment venues.
The Dallas CBD is the largest employment center in
North Texas as approximately 135,000 people work in
the downtown area. During the last 24 months, more
than 40 companies moved operations downtown,
occupying two million square feet of office space and
12
bringing in 7,500 new employees. Today, the Dallas
CBD is home to over 2,500 businesses, including
200 corporate or regional headquarters including
AT&T, Comerica, Neiman Marcus, JPMorganChase,
Goldman Sachs, and Invesco.
PURE Farmers Market is located adjacent to the
recently transformed Dallas Farmers Market, a 26,000
square foot open-air farmers’ pavilion offering local
seasonal produce, naturally raised meats, eggs,
cheeses, and other goods from local food artisans.
The Deep Ellum Entertainment district is one of
the top restaurant and entertainment destinations
in Dallas, including several of the top restaurants
in DFW. Deep Ellum also features a wide variety of
music venues, bars and nightlife, trendy retail, chef-
driven restaurants, gastro pubs, coffee shops and
casual eateries.
Over the last several years, Deep Ellum and Dallas
Farmers Market have become innovative, pedestrian
friendly, mixed-use urban hubs that residents of
PURE Farmers Market routinely enjoy.
PURE MULTI-FAMILY REIT LP ANNUAL REPORT Financial Highlights
($000’s, except unit amounts and average rent)
2017
2016
Change
FoR THE YEAR EnDED DECEMBER 31
Rental Revenue - Same Property(1)
Rental Revenue - Total
$61,653
$60,042
$93,099
$76,414
net Rental Income - Same Property (1)
$34,869
$33,608
net Rental Income - Total
$49,859
$41,692
2.7%
21.8%
3.8%
19.6%
3.8%
$1,170
96.1%
(60bps)
128.7%
128.7%
76.2%
76.2%
57.9%
57.9%
32.5%
32.5%
Average Rent Per occupied Residential Unit - Same Property (1)
Average Physical occupancy - Same Property (1)
$1,215
95.5%
(1) Same Property - represents properties owned as at January 1, 2016 and throughout the comparative period.
ToTAL RETURnS SInCE IPo
200.0%
Pure Multi Family REIT (US$)
Pure Multi Family REIT (C$)
150.0%
S&P/TSX Capped REIT Index
S&P/TSX Capped Composite Index
100.0%
50.0%
0.0%
(50.0%)
7/10/2012
1/10/2013
7/10/2013
1/10/2014
7/10/2014
1/10/2015
7/10/2015
1/10/2016
7/10/2016
1/10/2017
7/10/2017
1/10/2018
Total
Returns
YTD
1 Year
2 Years
3 Years
RUF.U
(TSX-V) USD
RUF.Un (1)
(TSX-V) CAD
S&P/TSX Capped
REIT Index
S&P/TSX Capped
Composite Index
1.0%
(6.7%)
33.2%
50.9%
3.4%
(8.0%)
29.4%
56.7%
(1.1%)
5.7%
21.0%
11.2%
32.5%
(4.7%)
1.9%
25.2%
10.1%
57.9%
Since IPo
76.2%
128.7%
Source: Bloomberg
As at March 2, 2018.
(1) Prior to launch of the C$ ticker on July 2, 2014, the C$ values were calculated
based on the US$ ticker converted at the daily spot exchange rate.
since the ipO in 2012, pure
Multi-Family has outperformed
the s&p/TsX Capped reiT
index and the s&p/TsX Capped
Composite index.
When translated into Canadian
dollars, the total returns
significantly outperform these
indices.
13
ANNUAL REPORT PURE MULTI-FAMILY REIT LP Financial Highlights - con’t
Same Property Growth
SP noI
SP Avg. Monthly Rent
SP Avg. noI
Average SP noI from
2014-2017 was 6.78%
4.30% 4.46% 4.12% 4.55%
5.61% 5.70% 6.04% 6.01% 5.53% 5.59% 5.64% 5.36%
4.57% 4.71%
3.42% 3.07%
15.00%
11.00%
7.00%
3.00%
-1.00%
Same Property as compared to properties owned as of the beginning of the previous year.
Rent and occupancy Trends
January 2017 to December 2017
Avg physical occupancy
Avg rent per sq.ft.
Avg leased occupancy
$1.41
$1.40
$1.39
$1.38
$1.37
$1.36
$1.35
100%
95%
90%
85%
80%
75%
70%
65%
60%
14
The Preserve at Arbor Hills, Dallas, Texas
PURE MULTI-FAMILY REIT LP ANNUAL REPORT Outlook
LooKInG AHEAD:
Internalized, vertically-integrated, property management platform
U.S. tax reform has created fertile ground for positive economic growth
U.S. apartment fundamentals continue to be strong
Greater growth potential in U.S. versus Canadian market
Job and population growth are fundamental drivers
of apartment demand and our core and target
markets continue
to experience considerable
economic growth and are nearing full employment
levels, which is expected to continue with the passing
of the recent U.S. tax reform bill.
U.S. Tax Reform has also reduced incentives for first
time homeowners which may reinforce demand for
rental apartments in the U.S.
With the internalization of the property management
and the asset management functions, Pure Multi-
Family is now a fully vertically integrated organization,
which we believe will enhance unitholder value
going forward through improved efficiencies, by
way of streamlining processes, in addition to the
elimination of external property management fees.
A Special Committee has been formed to undertake
a strategic review of all options, including the
potential sale of Pure Multi-Family. Our migration to
the TSX has been delayed pending the outcome of
the strategic review.
Our intention is to increase our portfolio holdings
in our current growth markets, as well as to expand
our platform operations to include additional strong
growth Sunbelt markets, that offer similar compelling
demand drivers.
With the robust pipeline of high-quality apartment
in these markets,
properties available for sale
coupled with stable capitalization
rates and
continuing favourable interest rates, we believe Pure
Multi-Family is well positioned to continue its strong
growth over the coming years, thus enhancing
unitholder value further.
Broadstone Walker Commons, Houston, Texas
15
ANNUAL REPORT PURE MULTI-FAMILY REIT LP Amalfi Stonebriar, Dallas, Texas
16
PURE MULTI-FAMILY REIT LP ANNUAL REPORT Management Discussion & analysis
For the year ended December 31, 2017
dated March 7, 2018
17
ANNUAL REPORT PURE MULTI-FAMILY REIT LP THIS PAGE IS LEFT INTENTIONALLY BLANK
18
PURE MULTI-FAMILY REIT LP ANNUAL REPORT Pure Multi-Family REIT LP
MD&A – December 31, 2017
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-Family”) for the year ended December 31, 2017 should be read
in conjunction with Pure Multi-Family’s audited consolidated financial statements for the year ended December 31,
2017, available on SEDAR at www.sedar.com and on Pure Multi-Family’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-Family’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-Family’s anticipated future events. These
statements include, but are not limited to:
(i) Pure Multi-Family’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-
Family’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-Family’s properties;
(iii) overall indebtedness levels, which could be impacted by the level of acquisition activity Pure Multi-Family is
able to achieve, fair value of its properties and future financing opportunities;
(iv) tax status of Pure US Apartments REIT Inc., which can be impacted by regulatory changes enacted by
governmental authorities;
(v) 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-Family’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-Family.
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-Family,
property acquisition and disposition prospects and opportunities will be consistent with Pure Multi-Family’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 low
relative to historic norms, and Pure Multi-Family’s business strategy, plans, outlook, projections, targets and operating
costs will be consistent with Pure Multi-Family’s experience over the past 12 months, Pure Multi-Family will be able
19
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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-Family’s business and financial results, and Pure Multi-Family 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-Family, investors and others should
carefully consider the foregoing factors and other uncertainties and potential events.
These forward-looking statements are made as of March 7, 2018 and Pure Multi-Family 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, 2017 includes material information up to March
7, 2018. 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-Family
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-Family’s results of operations (consolidated to Pure Multi’s
interest), 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, 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” and “Liquidity and Capital Resources – Funds from
Operations and Adjusted Funds from Operations”.
OVERVIEW
About Pure Multi-Family
Pure Multi-Family is a Canadian-based, vertically integrated, internally managed, publicly 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”).
Pure Multi-Family 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-Family 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”), dated May 8, 2012, as amended and restated May 28, 2015 and as amended August
21, 2015, and as may be amended from time to time. Pure Multi-Family’s head office and address for service is
located at 910 – 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2. Pure Multi-Family’s property
management office is located at 450 – 5810 Tennyson Parkway, Plano, Texas, 75024. A copy of the LP Agreement
can be obtained from the Chief Financial Officer of Pure Multi-Family and is available on SEDAR at www.sedar.com.
20
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Pure Multi-Family, 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))
Number of properties
Number of residential units
Portfolio average year of construction
Physical occupancy
Leased occupancy
Investment properties (000’s)
Mortgages payable (000’s)
Credit facility (000’s)
Weighted average effective interest rate on mortgages payable
Loan to gross book value
December 31,
2017
22
7,085
2007
93.7%
95.0%
$ 1,133,501
$ 576,253
$ 25,762
3.72%
53.4%
As at
December 31,
2016
15
5,229
2006
92.8%
94.9%
$ 778,547
$ 447,827
-
3.74%
55.2%
December 31,
2015
14
4,437
2003
96.2%
97.3%
$ 613,682
$ 354,202
-
3.72%
54.6%
Pure Multi’s interest
($000’s, except per unit basis)
(all per unit amounts based on basic weighted average
number of units outstanding)
Total rental revenue (2)
Total operating expense (2)
Total net rental income (2)
Net rental income margin
Basic weighted average number of units outstanding
Class A Units
Class B Units
Funds from operations (2)(3)
per Class A Unit
per Class B Unit
Payout ratio
Adjusted funds from operations (2)(3)
per Class A Unit
per Class B Unit
Payout ratio
For the
year ended
December 31,
2017
93,099
43,240
49,859
53.6%
$
For the
year ended
December 31,
2016
76,414
34,722
41,692
54.6%
$
For the three
months ended
December 31,
2017
26,200
11,124
15,076
57.5%
$
For the three
months ended
December 31,
2016
20,116
9,845
10,271
51.1%
$
68,926,987
200,000
22,684
0.32
4.22
119.9%
21,146
0.30
3.94
128.6%
51,553,540
200,000
20,207
0.37
4.90
101.5%
18,981
0.35
4.60
108.0%
76,726,771
200,000
7,526
0.10
1.26
98.9%
7,073
0.09
1.19
105.2%
55,418,872
200,000
4,584
0.08
1.05
119.7%
4,262
0.07
0.98
128.8%
Notes:
(1) The adjustments from the IFRS measure to Pure Multi’s interest (non-IFRS measure) is limited to the prorating and accrual of the property
tax liability and expense on all portfolio investments, based on the time period of ownership throughout the given reporting year. As a result,
balances other than property tax expense and the corresponding fair value adjustments present directly to the IFRS financial statements.
(2) For an IFRS to non-IFRS reconciliation, see “Results of Operations Reconciliation” and “Liquidity and Capital Resources – Funds from
Operations and Adjusted Funds from Operations”.
(3) Restated FFO and AFFO amounts for the three months and year ended December 31, 2016 to remove amortization of transaction costs and
mortgage prepayment expense.
21
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
During the year ended December 31, 2017, Pure Multi-Family acquired seven investment properties, comprised of
1,856 residential units for a combined purchase price of $328.3 million. These properties were acquired with cash,
cash held in trust, new mortgage financing in the amount of $133 million and funds advanced through a new corporate
level credit facility. These acquisitions resulted in Pure Multi-Family improving its portfolio average year of
construction to 2007 as at December 31, 2017, compared to 2006 as at December 31, 2016, and 2003 as at December
31, 2015.
Pure Multi-Family continues to maintain a conservative debt profile with a current average interest rate on mortgages
payable of 3.72% per annum and an average mortgage term to maturity of 8.9 years.
For the year ended December 31, 2017, rental revenue was $93,098,656 and net rental income was $49,858,162,
representing increases of $16,684,297 and $8,166,498, respectively, compared to the prior year. For the three months
ended December 31, 2017, rental revenue was $26,200,371 and net rental income was $15,075,978, representing
increases of $6,084,487 and $4,804,786, respectively, compared to the same period in the prior year.
For the year ended December 31, 2017, net rental income margin decreased to 53.6% from 54.6% in the prior year,
and for the three months ended December 31, 2017, net rental income margin increased to 57.5% from 51.1%
compared to the three months ended December 31, 2016. The decrease in net rental income margin for the year was
primarily driven by an increase in property tax expense, which was partially offset by the decrease in property
management fees. The increase in the three months ending December 31, 2017 compared to the prior year quarter is
primarily due to timing on the settlement of property tax appeals and the reduction in property management fees.
For the year ended December 31, 2017, Pure Multi-Family earned an average monthly rent per occupied unit of $1,250
or $1.370 per square foot, across its entire portfolio (year ended December 31, 2016 - $1,212 and $1.310, respectively),
representing an increase in the average monthly rent of an occupied unit of 3.1%, or 4.6% per square foot, over the
prior year. Pure Multi-Family earned an average monthly rent per occupied unit of $1,264 or $1.388 per square foot,
across its entire portfolio for the three months ended December 31, 2017 (three months ended December 31, 2016 -
$1,244 and $1.356, respectively), representing an increase in the average monthly rent of an occupied unit of 1.6%,
or 2.4% per square foot, compared to the same period in the prior year.
For the year ended December 31, 2017, the FFO payout ratio increased to 119.9% from 101.5% and the AFFO payout
ratio increased to 128.6% from 108.0% compared to the year ended December 31, 2016. For the three months ended
December 31, 2017, compared to the three months ended December 31, 2016, the FFO payout ratio decreased to
98.9% from 119.7% and the AFFO payout ratio decreased to 105.2% from 128.8%. The increases in the FFO and
AFFO payout ratios for the year ended December 31, 2017 compared to the same period in the prior year were
primarily due to the bought deal equity offerings completed during the current year combined with the timing of the
deployment of the proceeds used for acquisitions therefrom, an increase in property tax expenses, the additional
general and administrative expense incurred due to the internalization of the property management and asset
management functions, and the lowering of the overall leverage of Pure Multi-Family’s statement of financial position.
The decreases in the FFO and AFFO payout ratios for the three months ended December 31, 2017 compared to the
same period in the prior year were primarily due to the elimination of the payment of property management fees, as
all investment properties were fully transitioned internally by September 30, 2017, and from the settlement of the
remaining prior year property tax appeals.
During the year ended December 31, 2017, Pure Multi-Family internalized its property management function and
moved all property management related services under the US REIT. All investment properties were fully transitioned
by September 30, 2017, resulting in no property management fees being expensed across the portfolio during the three
months ended December 31, 2017, resulting in an increase in the net rental income margin. No penalties were incurred
upon termination of the property management agreement.
22
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Same Property Analysis (all metrics stated at Pure Multi’s interest)
Pure Multi’s interest
Rental revenue – same property (1) (by location)
January 1, 2016 base portfolio ($000’s)
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
$
December 31,
2017
40,203
8,421
10,032
2,997
$
For the year ended
December 31,
2016
38,910
8,375
9,902
2,855
$ Change % Change
3.3%
$
0.6%
1.3%
5.0%
1,293
46
130
142
Total – same property (1)
Total – properties acquired/sold (2)
61,653
31,446
60,042
16,372
1,611
2.7%
15,074
92.1%
Total rental revenue
$ 93,099
$ 76,414
$ 16,685
21.8%
Notes:
(1) Same property (non-IFRS measure) - represents properties owned as at January 1, 2016 and throughout the comparative periods, which
removes the impact of acquisitions and dispositions.
(2) Properties acquired/sold (non-IFRS measure) - represents properties which were acquired or sold, therefore not owned as at January 1, 2016
and throughout the comparative periods.
Pure Multi’s interest
Rental revenue – same property (1) (by location)
October 1, 2016 base portfolio ($000’s)
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the three months ended
December 31,
2017
$ 11,650
2,167
5,496
742
December 31,
2016
$ 11,365
2,088
5,341
710
$ Change % Change
2.5%
$
3.8%
2.9%
4.5%
285
79
155
32
Total – same property (1)
Total – properties acquired/sold (2)
Total rental revenue
Notes:
(1)
20,055
6,145
19,504
612
551
2.8%
5,533
904.1%
$ 26,200
$ 20,116
$ 6,084
30.2%
Same property (non-IFRS measure) - represents properties owned as at October 1, 2016 and throughout the comparative periods, which
removes the impact of acquisitions and dispositions.
(2) Properties acquired/sold (non-IFRS measure) - represents properties which were acquired or sold, therefore not owned as at October 1, 2016
and throughout the comparative periods.
Pure Multi’s interest
Net rental income – same property (1) (by location)
January 1, 2016 base portfolio ($000’s)
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
Total – same property (1)
Total – properties acquired/sold (2)
For the year ended
December 31,
2017
$ 22,888
4,936
5,205
1,840
34,869
14,990
$
December 31,
2016
22,034
4,982
4,903
1,689
$ Change % Change
3.9%
$
(0.9%)
6.2%
8.9%
854
(46)
302
151
33,608
8,084
1,261
6,906
3.8%
85.4%
Total net rental income
$ 49,859
$ 41,692
$ 8,167
19.6%
Notes:
(1) Same property (non-IFRS measure) - represents properties owned as at January 1, 2016 and throughout the comparative periods, which
removes the impact of acquisitions and dispositions.
(2) Properties acquired/sold (non-IFRS measure) - represents properties which were acquired or sold, therefore not owned as at January 1, 2016
and throughout the comparative periods.
23
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Pure Multi’s interest
Net rental income – same property (1) (by location)
October 1, 2016 base portfolio ($000’s)
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the three months ended
December 31,
2017
$ 6,801
1,352
3,071
466
December 31,
2016
$ 6,023
1,251
2,261
412
$ Change % Change
12.9%
$
8.1%
35.8%
13.2%
778
101
810
54
Total – same property (1)
Total – properties acquired/sold (2)
11,690
3,386
9,947
324
1,743
3,062
17.5%
945.1%
Total net rental income
$ 15,076
$ 10,271
$ 4,805
46.8%
Notes:
(1) Same property (non-IFRS measure) - represents properties owned as at October 1, 2016 and throughout the comparative periods, which
removes the impact of acquisitions and dispositions.
(2) Properties acquired/sold (non-IFRS measure) - represents properties which were acquired or sold, therefore not owned as at October 1,
2016 and throughout the comparative periods.
Average monthly rent per occupied unit -same
property (1) (by location)
January 1, 2016 base portfolio
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the year ended
$
December 31,
2017
1,194
1,212
1,329
1,157
$
December 31,
2016
1,143
1,176
1,301
1,102
$ Change % Change
4.4%
$
3.1%
2.1%
5.0%
51
36
28
55
Portfolio weighted average – same property (1)
Notes:
(1) Average monthly rent per occupied unit – same property (non-IFRS measure) - represents average monthly rental income for occupied units,
1,215
1,170
3.9%
45
for properties owned as at January 1, 2016 and throughout the comparative periods.
Average monthly rent per occupied unit -same
property (1) (by location)
October 1, 2016 base portfolio
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the three months ended
$
December 31,
2017
1,240
1,219
1,324
1,174
$
December 31,
2016
1,214
1,194
1,341
1,129
$ Change % Change
2.2%
$
2.1%
(1.2%)
4.0%
26
25
(17)
45
Portfolio weighted average – same property (1)
Notes:
(1) Average monthly rent per occupied unit – same property (non-IFRS measure) - represents average monthly rental income for occupied units,
1,242
1,258
1.3%
16
for properties owned as at October 1, 2016 and throughout the comparative periods.
24
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Average physical occupancy – same property (1)
(by location)
January 1, 2016 base portfolio
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the year ended
December 31,
2017
95.5%
95.9%
94.8%
96.3%
December 31,
2016
96.4%
96.7%
94.4%
96.7%
% Change
(0.9%)
(0.8%)
0.4%
(0.4%)
Portfolio weighted average – same property (1)
95.5%
96.1%
(0.6%)
Notes:
(1) Average physical occupancy – same property (non-IFRS measure) - represents average physical occupancy, for properties owned as at January
1, 2016 and throughout the comparative periods.
Average physical occupancy – same property (1)
(by location)
October 1, 2016 base portfolio
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the three months ended
December 31,
2017
95.2%
98.4%
95.0%
94.4%
December 31,
2016
94.8%
95.4%
89.9%
94.9%
% Change
0.4%
3.0%
5.1%
(0.5%)
Portfolio weighted average – same property (1)
95.5%
93.5%
2.0%
Notes:
(1) Average physical occupancy – same property (non-IFRS measure) - represents average physical occupancy, for properties owned as at October
1, 2016 and throughout the comparative periods.
For the year ended December 31, 2017, same property rental revenue increased by 2.7%, and same property net rental
income increased by 3.8%, compared to the prior year. The increase in same property rental revenue was primarily
driven by a 3.9% increase in the same property average monthly rent per occupied unit, while the increase in same
property net rental income was a result of increased revenues, the elimination of management fees due to the
internalization of the property management function, and increased efficiency managing the operating expenses, all
being partially offset by an increase in property tax expense and a slight decrease in average physical occupancy.
For the three months ended December 31, 2017, for investments which have been owned since October 1, 2016, same
property rental revenue increased by 2.8%, and same property net rental income increased by 17.5%, compared to the
same time period in the prior year. The increase in same property rental revenue was driven by a 2.0% increase in
average physical occupancy and a 1.3% increase in the same property average monthly rent per occupied unit, while
the increase in same property net rental income was driven largely by the elimination of the management fees due to
the internalization of the property management function, which resulted in the expense of no property management
fees during the three months ended December 31, 2017.
Due to the fluctuating nature of property tax expense and the material short term variances this creates quarter over
quarter, management feels the most accurate measure of same property net rental income is to compare twelve months
ended December 31 over the same period in the prior year.
Same Property Analysis (all metrics stated at Pure Multi’s interest)
In order to provide a more representative analysis of the same property operating metrics, the following section
provides a revised base portfolio for the comparison of same property operating metrics for the current quarter over
the same quarter in the prior year and includes only investment properties that have been owned since January 1, 2016.
Upon acquisition of a newly constructed investment property, there is a period required to bring the property to
operational efficiency under our new management. Each acquisition varies in the amount of time necessary to achieve
operational efficiency. Factors such as the occupancy level on acquisition and the year of construction can influence
the amount required to bring the property to a stabilized level. Additionally, depending on when in a given year an
acquisition is completed and at what stage of development the property is at when acquired, there can be significant
property tax expense increases during the year following the acquisition. By including only investment properties that
were owned at the beginning of the previous fiscal year, many of the issues noted above will be eliminated, allowing
25
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
for a more representative analysis when looking at a same property measure. For the three months ended December
31, 2017, the change in the base portfolio for this new disclosure, as compared to the base portfolio which includes
investments properties owned since October 1, 2016, is the elimination from the analysis of Pure View (defined herein)
and Pure Estates (defined herein), as both of these investment properties were acquired in March 2016 and the Avenue
(defined herein), which was acquired in September 2016.
Pure Multi’s interest
Rental revenue – same property (1) (by location)
January 1, 2016 base portfolio ($000’s)
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
Total – same property (1)
Total – properties acquired/sold (2)
For the three months ended
$
December 31,
2017
10,072
2,167
2,587
742
$
December 31,
2016
9,841
2,087
2,541
710
$ Change % Change
2.4%
$
3.8%
1.8%
4.5%
231
80
46
32
15,568
10,632
15,179
4,937
389
2.6%
5,695
115.4%
Total rental revenue
$
26,200
$
20,116
$
6,084
30.2%
Notes:
(1) Same property (non-IFRS measure) - represents properties owned as at January 1, 2016 and throughout the comparative periods, which
removes the impact of acquisitions and dispositions.
(2) Properties acquired/sold (non-IFRS measure) - represents properties which were acquired or sold, therefore not owned as at January 1, 2016
and throughout the comparative periods.
Pure Multi’s interest
Net rental income – same property (1) (by location)
January 1, 2016 base portfolio ($000’s)
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
Total – same property (1)
Total – properties acquired/sold (2)
For the three months ended
$
December 31,
2017
6,044
1,352
1,522
466
$
December 31,
2016
5,213
1,251
1,315
412
$ Change % Change
16.0%
$
8.1%
15.6%
13.2%
831
101
207
54
9,384
5,692
8,191
2,080
1,193
3,612
14.6%
173.7%
Total net rental income
$
15,076
$
10,271
$
4,805
46.8%
Notes:
(1) Same property (non-IFRS measure) - represents properties owned as at January 1, 2016 and throughout the comparative periods, which
removes the impact of acquisitions and dispositions.
(2) Properties acquired/sold (non-IFRS measure) - represents properties which were acquired or sold, therefore not owned as at January 1, 2016
and throughout the comparative periods.
Average monthly rent per occupied unit – same
property (1) (by location)
January 1, 2016 base portfolio
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the three months ended
$
December 31,
2017
1,207
1,219
1,339
1,174
$
December 31,
2016
1,168
1,194
1,302
1,129
$
$ Change % Change
3.3%
2.1%
2.8%
4.0%
39
25
37
45
Portfolio weighted average – same property (1)
$
1,228
$
1,191
$
37
3.1%
Notes:
(1) Average monthly rent per occupied unit – same property (non-IFRS measure) - represents average monthly rental income for occupied units,
for properties owned as at January 1, 2016 and throughout the comparative periods.
26
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Average physical occupancy – same property (1)
(by location)
January 1, 2016 base portfolio
Dallas - Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
For the three months ended
December 31,
2016
95.8%
95.4%
95.1%
94.9%
December 31,
2017
95.5%
98.4%
96.4%
94.4%
% Change
(0.3%)
3.0%
1.3%
(0.5%)
Portfolio weighted average – same property (1)
96.0%
95.6%
0.4%
Notes:
(1) Average physical occupancy – same property (non-IFRS measure) - represents average physical occupancy, for properties owned as at January
1, 2016 and throughout the comparative periods.
For the three months ended December 31, 2017, for investment properties which have been owned since January 1,
2016, same property rental revenue increased by 2.6%, and same property net rental income increased by 14.6%, over
the same period in the prior year. The increase in same property rental revenue was driven by a 3.1% increase in same
property average rent per occupied unit coupled with a 0.4% increase in physical occupancy, while being partially
offset by an increase in concessions offered at the investment properties. The increase in same property net rental
income was driven primarily by the elimination of the management fees during the three months ended December 31,
2017, due to the internalization of the property management function.
Portfolio Summary
As at December 31, 2017, Pure Multi-Family’s portfolio consists of 22 investment properties, comprising an aggregate
of 7,085 residential units, with an average size of 910 square feet per residential unit, located within five metropolitan
areas: (i) Dallas - Fort Worth (“DFW”), Texas, (ii) San Antonio (“SA”), Texas, (iii) Houston, Texas, (iv) Austin,
Texas and (v) Phoenix, Arizona.
The weighted average physical occupancy rate was 93.7% and weighted average leased occupancy rate was 95.0%
for all properties owned as at December 31, 2017 (December 31, 2016 – 92.8% and 94.9%, respectively). Typical
residential property leases have terms of between one to 12 months.
27
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Property Name
Location
Pure Farmers Market
DFW, TX
Pure at La Villita
DFW, TX
Lansbrook at Twin Creeks
DFW, TX
The Avenue on Fairmount
DFW, TX
Amalfi at Stonebriar
DFW, TX
Preserve at Arbor Hills
DFW, TX
Vistas at Hackberry Creek
DFW, TX
Fountainwood Apartments
DFW, TX
Stoneleigh at Valley Ranch DFW, TX
Prairie Creek Villas
DFW, TX
Stoneleigh at Bear Creek
DFW, TX
Pure Estates at TPC
Pure View at TPC
DFW, TX
SA, TX
SA, TX
Brackenridge at Midtown
SA, TX
Park at West Avenue
SA, TX
SA, TX
Walker Commons
Houston, TX
The Boulevard at Deer Park Houston, TX
Year of
Acquisition
Year of
Construction Units
As at
December 31, 2017
Debt to
Fair
Market
Value
Fair
Market
Value
($000’s)
Cap
Rate
For the three months ended
December 31, 2017
Physical
Occupancy
Leased
Occupancy
Average
Rent per
Occupied
Unit
2017
2017
2017
2016
2015
2014
2013
2013
2012
2012
2012
2016
2016
2015
2015
2014
2013
2016
340 $ 66,387
50.5%
5.00%
85.5%
87.0%
$ 1,450
2007
306
48,908
49.9%
5.00%
87.8%
88.7%
1,361
2002
288
40,335
40.9%
5.25%
97.1%
98.0%
1,125
2015
368
67,309
63.9%
4.75%
95.8%
97.3%
1,483
2014
395
66,917
67.2%
4.75%
93.4%
94.3%
1,247
1998
330
53,168
45.1%
5.25%
92.8%
93.8%
1984
560
67,217
43.9%
5.50%
96.0%
97.1%
1986
288
29,300
41.9%
6.00%
93.9%
94.8%
1999
210
32,023
42.7%
5.25%
93.2%
95.2%
1997
464
84,950
52.6%
5.25%
96.9%
98.3%
2004
436
66,057
48.6%
5.25%
97.3%
98.4%
2005 3,985
622,571
51.2%
5.16%
94.0%
95.2%
2007
344
56,896
66.4%
5.00%
94.7%
96.0%
2014
416
58,818
64.3%
5.00%
93.1%
94.6%
2014
282
51,400
59.5%
5.00%
97.2%
98.2%
2014
360
53,080
68.8%
5.00%
95.7%
97.3%
2012 1,402
220,194
64.8%
5.00%
95.0%
96.4%
2008
352
53,013
53.7%
6.00%
99.0%
99.9%
2000
216
27,700
57.1%
5.75%
97.4%
98.4%
1,253
1,041
984
1,316
1,383
1,256
1,258
1,409
1,232
1,459
1,245
1,324
1,229
1,202
Houston, TX
2005
568
80,713
54.9%
5.91%
98.4%
99.3%
1,219
Pure Creekside
Austin, TX
2017
2016
276
40,119
49.9%
5.00%
91.7%
93.3%
1,186
Pure Fillmore
Phoenix, AZ
Pinnacle at Union Hills
Phoenix, AZ
Pure Park 28 Apartments
Phoenix, AZ
San Brisas Apartments
Phoenix, AZ
2017
2017
2017
2013
& 2014
2016
230
55,975
-
5.00%
87.4%
90.4%
1996
264
47,663
49.8%
5.25%
95.1%
96.8%
2015
152
29,721
50.0%
5.00%
93.6%
95.9%
1,382
1,205
1,287
1996
208
36,545
45.3%
5.25%
94.4%
95.1%
1,174
Portfolio Total/Average
2007 7,085 $1,133,501
51.2%
5.17%
94.4%
95.7%
$ 1,263
Phoenix, AZ
2006
854
169,904
32.5%
5.12%
93.7%
95.4%
1,234
28
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Acquisitions and Dispositions
Properties Acquired During 2017
On January 25, 2017, Pure Multi-Family, through the US REIT, acquired PURE Creekside at Onion Creek
(“Creekside”), a multi-family apartment community, located in Austin, Texas, for a purchase price of $40,000,000,
plus standard closing costs and adjustments. This acquisition was financed with cash on hand and a new 10-year
mortgage in the amount of $20,000,000.
On January 27, 2017, Pure Multi-Family, through the US REIT, acquired Lansbrook at Twin Creeks (“Lansbrook”),
a multi-family apartment community, located in Dallas, Texas, for a purchase price of $40,000,000, plus standard
closing costs and adjustments. This acquisition was financed with cash on hand and a new 5-year mortgage in the
amount of $16,500,000.
On June 9, 2017, Pure Multi-Family, through the US REIT, acquired Park 28 (“Park 28”), a multi-family apartment
community, located in Phoenix, Arizona, for a purchase price of $29,700,000, plus standard closing costs and
adjustments. This acquisition was financed with cash on hand and a new 15-year mortgage in the amount of
$14,850,000.
On June 15, 2017, Pure Multi-Family, through the US REIT, acquired Pinnacle at Union Hills (“Pinnacle”), a multi-
family apartment community, located in Phoenix, Arizona, for a purchase price of $47,500,000, plus standard closing
costs and adjustments. This acquisition was financed with cash on hand. Subsequent to the acquisition, on July 7,
2017, Pure Multi-Family obtained a new 7-year mortgage in the amount of $23,750,000.
On July 11, 2017, Pure Multi-Family, through the US REIT, acquired PURE at La Villita (“La Villita”), a multi-
family apartment community, located in Phoenix, Arizona, for a purchase price of $48,800,000, plus standard closing
costs and adjustments. This acquisition was financed with cash on hand a new 15-year mortgage in the amount of
$24,400,000.
On October 2, 2017, Pure Multi-Family, through the US REIT, acquired PURE Farmers Market Apartments (“Farmers
Market”), a multi-family apartment community, located in Dallas, Texas, for a purchase price of $66,350,000, plus
standard closing costs and adjustments. This acquisition was financed with cash on hand and a new 12-year mortgage
in the amount of $33,500,000.
On November 29, 2017, Pure Multi-Family, through the US REIT, acquired PURE Fillmore Apartments (“Fillmore”),
a multi-family apartment community, located in Phoenix, Arizona, for a purchase price of $55,947,140, plus standard
closing costs and adjustments. This acquisition was financed with cash on hand and $29,000,000 from a new corporate
level credit facility.
Financings
April 2017 Class A Unit Offering
On April 7, 2017, Pure Multi-Family completed a public offering (the “April 2017 Offering”) of 10,343,100 Class A
Units, at a price of $6.665 (CDN$8.90) per Class A Unit, for gross proceeds of $68,938,208 (CDN$92,053,590), less
offering costs.
The April 2017 Offering was completed on a “blind-pool” basis, meaning there were no properties identified for
acquisition at the time of the offering. Net proceeds from the April 2017 Offering were used to acquire Park 28 and
Pinnacle, as follows:
29
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Use of Proceeds
($000’s)
Purchase Price
(Before Closing
Adjustments)
Mortgage
Proceeds
Gross proceeds
used from April
2017 Offering
Working
Capital
Park 28
Pinnacle
Totals
$ 29,700
$ 14,850
$ 14,850
$
47,500
77,200
-
14,850
47,500
62,350
-
-
-
Total
$ 29,700
47,500
77,200
The remaining gross proceeds of approximately $6.6 million from the April 2017 Offering were used to fund the
offering costs of the April 2017 Offering, acquisition and financing costs of Park 28 and Pinnacle, and for general
working capital purposes for Pure Multi-Family.
June 2017 Class A Unit Offering
On June 30, 2017, Pure Multi-Family completed a public offering (the “June 2017 Offering”) of 10,281,000 Class A
Units, at a price of $6.756 (CDN$8.95) per Class A Unit, for gross proceeds of $69,459,954 (CDN$92,014,950), less
offering costs.
The June 2017 Offering was completed on a “blind-pool” basis, meaning there were no properties identified for
acquisition at the time of the offering. Net proceeds from the June 2017 Offering were used to acquire Farmers Market
and Fillmore, as follows:
Use of Proceeds
($000’s)
Purchase Price
(Before Closing
Adjustments)
Mortgage
Proceeds
Gross proceeds
used from June
2017 Offering
Working
Capital
Total
Farmers Market
$ 66,350
$ 33,500
$ 32,850
$ -
$ 66,350
Fillmore
Totals
55,947
-
122,297
33,500
26,947
59,797
29,000 (1)
55,947
29,000
122,297
(1) Corporate credit facility, secured against property.
The remaining gross proceeds of approximately $9.7 million from the June 2017 Offering were used to fund the
offering costs of the June 2017 Offering, acquisition and financing costs of Farmers Market and Fillmore, and for
general working capital purposes for Pure Multi-Family.
Credit Facility
On November 28, 2017, Pure Multi-Family entered into a secured revolving credit agreement (the “Facility”), through
the US REIT, with a total commitment available of up to $50 million. The contract period is 3 years in duration and
interest is calculated using the effective interest rate, which was 3.64% for 2017. Amounts drawn under the Facility
will bear interest at a variable rate initially equal to: (i) LIBOR plus a margin ranging from 1.55% to 2.20% per annum,
or (ii) a base rate plus a margin ranging from 0.55% to 1.20% per annum. As at December 31, 2017, a balance of $26
million was outstanding. The Facility is secured by the Fillmore investment property.
30
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
The following summarizes the face and carrying values of the credit facility:
($000’s)
Balance as at December 31, 2016
Credit facility draws
Credit facility repayments
Credit facility financing costs
Amortization of transaction costs
Balance as at December 31, 2017
OUTLOOK
Face Value
$ -
29,000
(3,000)
-
-
$ 26,000
Carrying Value
$ -
29,000
(3,000)
(245)
7
$ 25,762
Pure Multi-Family’s strategy is to acquire a high-quality apartment portfolio located in the strongest growth markets
within the U.S. Sunbelt region. A conservative approach to balance sheet management has resulted in one of the
longest average mortgage terms in the sector at 8.9 years, with an average mortgage interest rate of 3.72% per annum,
as at December 31, 2017.
Job and population growth are fundamental drivers of apartment demand and our core and target markets continue to
experience considerable economic growth and are nearing full employment levels, which is expected to continue with
the passing of the recent U.S. tax reform bill. U.S. Tax Reform has also reduced incentives for first time homeowners
which may reinforce demand for rental apartments in the U.S.. Pure Multi-Family 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 affecting our
urban-renewal approach to our overall portfolio asset management.
During 2017, we added seven high-quality, resort-style investment properties to the Pure Multi-Family portfolio, one
of which being located in a new market for us, Austin, Texas. With the addition of Austin, Texas to our current
markets, we now have expanded our presence to five strong geographical markets within Texas and Arizona. These
acquisitions helped to renew our portfolio as the seven investment properties acquired had an average year of
construction of 2010, bringing our overall portfolio’s average year of construction to 2007 at the end of the year.
Along with the long-term benefits of owning and operating high-quality, newly constructed investment properties are
some initial short-term challenges. As we have encountered over the last few quarters, occupancy rates of the newly
constructed investment properties still in stabilization tend to be at a slightly decreased level compared to our portfolio
average, as they transition through a stabilization period. Once fully stabilized, which we anticipate being anywhere
from a few months to 18 months from acquisition date, given the specific factors of each investment property, we
expect these newer-built assets to be operating at our portfolio average occupancy rates, while at the same time
achieving the benefits that a newly constructed asset produces, such as higher rental rates and lower capital
expenditures, which create an increased net rental income margin.
31
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
With the internalization of the property management function completed during the current year and the internalization
of the asset management function completed during the prior year, Pure Multi-Family is now a fully vertically
integrated organization, which we believe will enhance unitholder value going forward through improved efficiencies,
by way of streamlining processes, in addition to the elimination of external property management fees.
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 strong growth Sunbelt markets, that offer similar compelling demand
drivers. With the robust pipeline of high-quality apartment properties available for sale in these markets, coupled with
stable capitalization rates and continuing favourable interest rates, we believe Pure Multi-Family is well positioned to
continue its strong growth over the coming years, thus enhancing unitholder value further.
SECTION II
RESULTS OF OPERATIONS RECONCILIATION
“Pure Multi’s interest” is a non-IFRS measure representing 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-Family’s consolidated financial statements prepared in
accordance with IFRS to Pure Multi’s interest, as described above, for the affected current and comparative periods.
32
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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, 2017
($000’s)
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
Franchise taxes
Consolidated (1)
IFRIC 21 Property Tax
Adjustment (2)
Pure Multi’s Interest (3)
$ 93,099
$ -
$ 93,099
1,908
1,859
15,647
20,916
40,330
52,769
112
(22,104)
(16)
(22,008)
663
(5,369)
17,602
(461)
12,435
-
-
2,910
-
2,910
(2,910)
-
-
-
-
-
-
2,910
-
2,910
1,908
1,859
18,557
20,916
43,240
49,859
112
(22,104)
(16)
(22,008)
663
(5,369)
20,512
(461)
15,345
NET INCOME AND COMPREHENSIVE
INCOME
$ 43,196
$ -
$ 43,196
Notes:
(1) Represents Pure Multi-Family’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi-Family’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.
33
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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, 2017
($000’s)
REVENUES
Rental
OPERATING EXPENSES
Insurance
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
Franchise taxes
Consolidated (1)
IFRIC 21 Property Tax
Adjustment (2)
Pure Multi’s Interest (3)
$ 26,200
$ -
$ 26,200
526
(372)
5,723
5,877
20,323
13
(6,171)
(4)
(6,162)
425
(1,683)
(5,749)
(3,946)
(130)
(11,083)
-
5,247
-
5,247
(5,247)
-
-
-
-
-
1,301
3,946
-
5,247
526
4,875
5,723
11,124
15,076
13
(6,171)
(4)
(6,162)
425
(1,683)
(4,448)
-
(130)
(5,836)
NET INCOME AND COMPREHENSIVE
INCOME
$ 3,078
$ -
$ 3,078
Notes:
(1) Represents Pure Multi-Family’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi-Family’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.
34
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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, 2016
($000’s)
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 properties
Franchise taxes
Consolidated (1)
IFRIC 21 Property Tax
Adjustment (2)
Pure Multi’s Interest (3)
$
76,414
$
1,588
2,301
11,185
16,705
31,779
44,635
38
(19,799)
(16)
(19,777)
18
(1,438)
26,498
(1,485)
(287)
23,306
-
-
-
2,943
-
2,943
(2,943)
-
-
-
-
-
-
2,943
-
-
2,943
$
76,414
1,588
2,301
14,128
16,705
34,722
41,692
38
(19,799)
(16)
(19,777)
18
(1,438)
29,441
(1,485)
(287)
26,249
NET INCOME AND COMPREHENSIVE
INCOME
$
48,164
$
-
$
48,164
Notes:
(1) Represents Pure Multi-Family’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi-Family’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.
35
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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, 2016
($000’s)
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 expense
General and administrative
Fair value adjustments to investment
properties
IFRIC 21 fair value adjustment to
investment properties
Loss on disposal of investment properties
Franchise taxes
Consolidated (1)
IFRIC 21 Property Tax
Adjustment (2)
Pure Multi’s Interest (3)
$
20,116
$
417
622
220
4,602
5,861
14,255
11
(4,952)
(4)
(4,945)
(72)
(568)
(1,042)
(2,782)
(1,485)
(102)
(6,051)
-
-
-
3,984
-
3,984
(3,984)
-
-
-
-
-
-
1,202
2,782
-
-
3,984
$
20,116
417
622
4,204
4,602
9,845
10,271
11
(4,952)
(4)
(4,945)
(72)
(568)
160
-
(1,485)
(102)
(2,067)
NET INCOME AND COMPREHENSIVE
INCOME
$
3,259
$
-
$
3,259
Notes:
(1) Represents Pure Multi-Family’s consolidated statement of income and comprehensive income prepared in accordance with IFRS.
(2) Represents Pure Multi-Family’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.
36
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
RESULTS OF OPERATIONS
($000’s, except per unit basis)
Revenues
Rental
Operating Expenses
Insurance
Property management
Property taxes (1)
Property operating expenses
Net Rental Income (1)
Net Finance Income (Expenses)
Interest income
Interest expense
Distributions to subsidiary’s
preferred unitholders
Other Income (Expenses) (1)
Other income (expense)
General and administrative
Fair value adjustments to
investment properties (1)
Loss on disposal of investment
properties
Franchise taxes
Net Income and Comprehensive
Income
For the
year ended
December 31,
2017
For the
year ended
December 31,
2016
For the three
months ended
December 31,
2017
For the three
months ended
December 31,
2016
$ 93,099
$ 76,414
$
26,200
$
20,116
1,908
1,859
18,557
20,916
43,240
49,859
112
(22,104)
(16)
(22,008)
663
(5,369)
20,512
-
(461)
15,345
1,588
2,301
14,128
16,705
34,722
41,692
38
(19,799)
(16)
(19,777)
18
(1,438)
29,441
(1,485)
(287)
26,249
526
-
4,875
5,723
11,124
15,076
13
(6,171)
(4)
(6,162)
425
(1,683)
(4,448)
-
(130)
(5,836)
417
622
4,204
4,602
9,845
10,271
11
(4,952)
(4)
(4,945)
(72)
(568)
160
(1,485)
(102)
(2,067)
$ 43,196
$ 48,164
$ 3,078
$
3,259
Earnings per Class A Unit – basic
$
0.60
$
0.89
$
0.04
$
0.06
Weighted average number of
Class A Units – basic
68,926,987
51,553,540
76,729,771
55,418,872
Earnings per Class A Unit – diluted
$
0.60
$
0.86
$
0.04
$
0.06
Weighted average number of
Class A Units – diluted
Earnings per Class B Unit – basic
Earnings per Class B Unit – diluted
Weighted average number of
Class B Units – basic and diluted
72,958,845
55,739,002
76,729,771
55,497,401
$
$
8.04
7.96
$
$
11.67
11.67
$
$
0.52
0.52
$
$
0.75
0.75
200,000
200,000
200,000
200,000
Notes:
(1) Represents Pure Multi’s interest, see “Results of Operations Reconciliation” for adjustments from IFRS to Pure Multi’s interest.
37
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
During the year ended December 31, 2017, based on Pure Multi’s interest, Pure Multi-Family recorded rental revenue
of $93,098,656, net rental income of $49,858,162, fair value adjustments to investment properties of $20,512,447 and
net income of $43,196,301 (year ended December 31, 2016 - $76,414,359, $41,691,664, $29,440,739 and
$48,163,729, respectively). During the year ended December 31, 2017, Pure Multi-Family incurred $5,369,059 of
general and administrative expenses (year ended December 31, 2016 - $1,438,416), recorded no gains or losses on
disposal of investment properties (year ended December 31, 2016 – loss of $1,484,345), and incurred franchise tax
expense of $460,952 (year ended December 31, 2016 - $287,241). The increase in revenues and expenses, in general,
primarily attributable to Pure Multi-Family operating additional investment properties, coupled with rental revenue
growth during the year ended December 31, 2017, compared to the prior year. The increase in general and
administrative expenses was primarily due to the internalization of the property management function, which
commenced during the second quarter of 2017, and the internalization of the asset management function, which
occurred during the third quarter of 2016. The decrease in net income during the year ended December 31, 2017, is
primarily due to an increase in property tax expense and general and administrative expense, coupled with a smaller
gain on fair value adjustments to investments properties, compared to the prior year.
Rental Revenue
Rental revenue from investment properties includes recoveries of specified operating expenses, in accordance with
the terms of the lease agreements. The increase in rental revenue was primarily attributable to Pure Multi-Family
operating additional investment properties and residential units during the three months and year ended December 31,
2017, compared to the same periods in the prior year, in addition to organic rental revenue growth experienced from
the investment properties operated during such periods.
Operating Expenses
Operating expenses include costs relating to such items as cleaning, repairs and maintenance, turnover costs, HVAC,
property payroll, insurance, property taxes, utilities and property management fees among other items. In aggregate,
operating expenses totaled $43,240,494 for the year ended December 31, 2017 (year ended December 31, 2016 -
$34,722,695) and $11,124,393 for the three months ended December 31, 2017 (three months ended December 31,
2016 - $9,844,692). The increase in operating expenses was primarily due to Pure Multi-Family operating additional
investment properties and residential units during the current period combined with an increase in property tax
expense, which was partially offset by a reduction in property management fees. The increase in property tax expense
is primarily due to the acquisition of newly constructed investment properties across the portfolio. As these newly
constructed investment properties transition from the lease-up phase to expected occupancy, their respective assessed
tax values can, and most often do, significantly increase which in turn increases the overall property tax expense
compared to the prior year. The increase in property tax expense and the reduction in property management fees had
the most significant impacts on the operating margins, whereby Pure Multi-Family’s operating margin during the year
ended December 31, 2017 decreased to 53.6% compared to 54.6% during the prior year. The increase in the operating
margin for the three months ended December 31, 2017, 57.5%, compared to the prior year period, 51.1%, is due
mainly to timing with regard to the settlement of property tax appeals and the elimination of property management
fees.
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
Net rental income margin
For the
year ended
December 31, 2017
4.4%
4.3%
42.9%
For the
year ended
December 31, 2016
4.6%
6.6%
40.7%
For the three
months ended
December 31, 2017
4.7%
-
43.8%
For the three
months ended
December 31, 2016
4.2%
6.3%
42.7%
48.4%
100.0%
53.6%
48.1%
100.0%
54.6%
51.5%
100.0%
57.5%
46.8%
100.0%
51.1%
38
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Finance Income
Finance income consists of interest income which was earned from bank deposits at Pure Multi-Family 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-Family declared distributions in the amount of $15,625 to
the subsidiary’s preferred unitholders during the year ended December 31, 2017 (year ended December 31, 2016 -
$15,625).
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.
The weighted average interest rate on the mortgages is 3.72% per annum as at December 31, 2017 (December 31,
2016 - 3.74%) and the mortgages mature between 2019 and 2032 with a weighted average mortgage term of 8.9 years
remaining (December 31, 2016 - 9.4 years remaining). Pure Multi-Family intends to refinance any mortgages which
mature within six months of the maturity date.
General and Administrative Expenses
General and administrative (“G&A”) expenses are primarily comprised of corporate compensation, directors’ fees,
directors’ and officers’ liability insurance, professional fees, legal fees, filing fees, and administrative expenses.
Professional fees include audit and tax fees. Administrative expenses include US REIT compliance expenditures,
investor relations expenses, bank charges, and beginning September 1, 2016, office overhead and rent.
Subsequent to the Determination Event (as defined in the LP Agreement), on September 1, 2016, Pure Multi-Family
internalized its asset management and terminated the Asset Management Agreement with the Managing GP. No
penalties were incurred upon termination of the agreement. Prior to September 1, 2016, pursuant to the Asset
Management Agreement, the Managing GP provided Pure Multi-Family 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.
During 2017, Pure Multi-Family went through the process of internalizing its property management function. These
additional corporate compensation and administrative expenses, which were not incurred during the comparative
periods, include non-recurring start-up costs, salaries and benefits, office rent and additional office overhead. The
non-recurring start-up costs incurred during the year ended December 31, 2017 were $921,207, and during the three
months ended December 31, 2017 were $219,217. When removing these non-recurring expenditures from overall
G&A expense, this results in an adjusted G&A expense as a percentage of revenue of 4.8% for the twelve months
ended December 31, 2017 and 5.6% for the three months ended December 31, 2017.
39
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
The following table illustrates corporate expenses as a percentage of overall general and administrative expenses:
For the
year ended
December 31, 2017
1.3%
8.2%
7.1%
5.4%
46.8%
31.2%
For the
year ended
December 31, 2016
3.5%
25.4%
20.8%
21.0%
17.5%
11.8%
For the three
months ended
December 31, 2017
1.8%
8.7%
4.8%
3.8%
47.6%
33.3%
For the three
months ended
December 31, 2016
2.2%
19.1%
12.4%
14.8%
36.3%
15.2%
100.0%
5.8%
100.0%
1.9%
100.0%
6.4%
100.0%
2.8%
Insurance
Professional fees
Legal and filing fees
Directors’ fees
Corporate compensation
Administrative expenses
G&A expense as a percentage
of rental revenue
Other Income (Expenses)
Other income (expenses) includes proceeds resulting from acquisition guarantees, certain property due diligence
expenses, GST, Canadian income tax provision and foreign currency exchange gains and losses.
Fair Value Adjustments to Investment Properties
Pure Multi-Family 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, 2017, based on Pure Multi’s interest,
Pure Multi-Family recorded an increase of $20,512,447 in the fair value of its investment properties (year ended
December 31, 2016 - $29,440,739). The weighted average capitalization rate of the investment properties at December
31, 2017, based on Pure Multi’s interest, was 5.17% (December 31, 2016 – 5.41%).
Income Taxes
Pure Multi-Family is not subject to tax under Part I of the Income Tax Act (Canada) (the “Tax Act”). Each partner
(or “unitholder”) of Pure Multi-Family 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-Family 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.
Pure Multi-Family’s indirect Canadian subsidiary, Pure Multi-Family Management Ltd., is a taxable Canadian
corporation subject to Canadian income tax.
Franchise Taxes
Texas Franchise Tax applicable to Pure Multi-Family, for its investment properties operated in Texas during the year
ended December 31, 2017, is equal to 0.75% 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-Family recorded a provision for Texas Franchise Tax of $460,952 for the year ended December 31, 2017
(year ended December 31, 2016 - $287,241).
40
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Offering Costs
Offering costs are the costs incurred by Pure Multi-Family that relate to the issuance of securities, which are included
in the statement of partners’ capital. Pure Multi-Family incurred $6,147,062 of offering costs, during the year ended
December 31, 2017 (year ended December 31, 2016 - $1,420,147).
SEGMENTED INFORMATION
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. Pure Multi-Family currently
operates in one business segment, indirectly owning and operating multifamily apartment properties in the Sunbelt
region in the United States.
FINANCIAL CONDITION
Assets
Investment Properties
Investment properties are stated at fair value. Fair value adjustments to investment properties arising from changes in
fair value are included in the consolidated statement of income and comprehensive income in the period which they
arise. As at December 31, 2017, investment properties were valued at $1,133,501,407 (December 31, 2016 -
$778,547,182). The increase in investment properties is primarily due to the acquisition of seven investment properties
for a combined purchase price of $328,297,140, combined with a fair value increase adjustment. The increase in the
fair value adjustment to investment properties was driven by both an increase in net rental income and a reduction in
capitalization rates at certain properties.
The investment properties are pledged as security against the mortgages payable.
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, 2017, the term for the current mortgage reserve
fund is less than 12 months. The mortgage reserve fund is $6,421,458, as at December 31, 2017 (December 31, 2016
- $5,193,406).
Liabilities
The LP Agreement limits the indebtedness of Pure Multi-Family 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 53.4% of the gross book value as at December 31, 2017 (December 31,
2016 – 55.2%).
Mortgages Payable
The mortgages bear interest at a weighted average effective rate of 3.72% per annum, as at December 31, 2017
(December 31, 2016 – 3.74%) and mature between 2019 and 2032.
41
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
42
PURE MULTI-FAMILY REIT LP ANNUAL REPORTPure Multi-Family REIT LP MD&A – December 31, 2017 The scheduled principal payments, principal maturities and weighted average effective rate are as follows: December 31, 2017 ($000’s, except percentage amounts) Weighted Average Effective Rate (on expiry) Scheduled Principal Repayments Principal Maturities Total Repayments 2018 - 4,563 - 4,563 2019 3.29% 6,166 60,550 66,716 2020 - 7,019 - 7,019 2021 3.26% 7,226 37,060 44,286 2022 3.38% 7,485 30,180 37,665 2023 4.32% 7,683 24,679 32,362 2024 3.71% 7,416 56,292 63,708 2025 - 7,530 - 7,530 2026 - 8,122 - 8,122 2027 3.83% 7,801 82,425 90,226 Thereafter 3.83% 16,587 201,972 218,559 3.72% $ 87,598 $ 493,158 580,756 Unamortized mortgage transaction costs (4,503) $ 576,253 The following chart shows the remaining scheduled principal payments and principal maturities of the mortgages due within the next 10 years and thereafter: 0.8%11.5%1.2%7.6%6.5%5.5%11.0%1.3%1.4%15.5%37.7%0.0%20.0%40.0%60.0%80.0%100.0%20182020202220242026ThereafterMaturityScheduled Principal Pure Multi-Family REIT LP
MD&A – December 31, 2017
Credit Facility
On November 28, 2017, Pure Multi-Family entered into a secured revolving credit agreement (the “Facility”), through
the US REIT, with a total commitment available of up to $50 million. The contract period is 3 years in duration and
interest is calculated using the effective interest rate, which was 3.64% for 2017. Amounts drawn under the Facility
will bear interest at a variable rate initially equal to: (i) LIBOR plus a margin ranging from 1.55% to 2.20% per annum,
or (ii) a base rate plus a margin ranging from 0.55% to 1.20% per annum. As at December 31, 2017, a balance of $26
million was outstanding. The Facility is secured by the Fillmore investment property.
(000’s)
Balance as at December 31, 2016
Credit facility draws
Credit facility repayments
Credit facility financing costs
Amortization of transaction costs
Balance as at December 31, 2017
Preferred Units of Subsidiary
Face Value
$ -
29,000
(3,000)
-
-
$ 26,000
Carrying Value
$ -
29,000
(3,000)
(245)
7
$ 25,762
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-Family.
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.
Convertible Debentures
On August 7, 2013, Pure Multi-Family 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 (each a “Class A Unit”) 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-Family, 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-Family at any time.
During the year ended December 31, 2017, 210 of the originally issued 23,000 6.5% convertible debentures were
converted into Class A Units (December 31, 2016 – 10). At December 31, 2017, $22,780,000 of the face value of the
6.5% convertible debentures was outstanding
43
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
The following summarizes the face and carrying values of the 6.5% convertible debentures:
($000’s)
Balance as at December 31, 2016
Conversion of convertible debenture
Amortization of transaction costs
Accretion of liability component
Balance as at December 31, 2017
Balance as at December 31, 2015
Conversion of convertible debenture
Amortization of transaction costs
Accretion of liability component
Balance as at December 31, 2016
Partners’ Capital
Convertible
Debentures
Face Value
$ 22,990
(210)
-
-
22,780
$ 23,000
(10)
-
-
$ 22,990
Liability
Component
Carrying Value
Equity Component
Carrying Value
$ 20,793 $ 1,984
(191)
181
332
21,115
(19)
-
-
1,965
$ 20,320 $ 1,985
(9)
168
314
(1)
-
-
$ 20,793 $ 1,984
The capital of Pure Multi-Family consists of an unlimited number of Class A Units and Class B units (each a “Class
B Unit”) and the interest held by the Governing GP. The Governing GP has made a capital contribution of $20 to
Pure Multi-Family 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-Family, at a price of $5.00
per Class B Unit, for gross proceeds to Pure Multi-Family of $1,000,000. As of the date hereof, Pure Multi-Family
has 200,000 Class B Units outstanding.
From the date of formation on May 8, 2012, to December 31, 2016, Pure Multi-Family has issued 56,068,506 Class
A Units for gross proceeds of $383,992,529, less offering costs.
During the years ended December 31, 2017, the following transactions occurred:
(a) On April 7, 2017, Pure Multi-Family completed the closing of a public offering of 10,343,100 Class A Units on
a bought deal basis, at a price of $6.67 (CDN$8.90) per Class A Unit for gross proceeds of $68,938,208
(CDN$92,053,590). Pure Multi-Family issued the Class A Units from treasury.
(b) On June 30, 2017, Pure Multi-Family completed the closing of a public offering of 10,281,000 Class A Units on
a bought deal basis, at a price of $6.76 (CDN$8.95) per Class A Unit for gross proceeds of $69,459,954
(CDN$92,014,950). Pure Multi-Family issued the Class A Units from treasury.
(c) During the year ended December 31, 2017, 210 6.5% convertible debentures were converted at a conversion price
of $5.65 into 37,165 Class A Units. Pure Multi-Family issued the Class A Units from treasury.
(d) In September 2017, Pure Multi-Family received approval from the TSX Venture Exchange to commence a normal
course issuer bid (“NCIB”), allowing for the purchase for cancellation of up to 1,000,000 Class A Units. The
NCIB commenced on October 3, 2017 and will expire on October 2, 2018, or such earlier date as Pure Multi-
Family completes its purchases pursuant to the NCIB. Purchases subject to this NCIB will be carried out pursuant
to open market transactions through the facilities of the TSX-V by CIBC on behalf of Pure Multi-Family in
accordance with applicable regulatory requirements. All Class A Units purchased by Pure Multi-Family under
the NCIB will be returned to treasury and cancelled. During the year ended December 31, 2017, Pure Multi-
Family did not purchase and cancel any Class A Units under the NCIB.
44
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Class A Units outstanding, beginning of year
Class A Units issued, public offering
Class A Units issued, warrants exercised
Class A Units issued, debentures converted
Class A Units outstanding, end of year
2017
56,068,506
20,624,100
-
37,165
76,729,771
2016
49,039,824
4,884,000
2,142,913
1,769
56,068,506
As at December 31, 2017, Pure Multi-Family had 76,729,771 Class A Units and 200,000 Class B Units outstanding.
The capital of Pure Multi-Family 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-Family’s prospectuses dated July 3, 2012, October 12, 2012, May 1,
2013, July 22, 2014, May 4, 2015, December 7, 2015, July 22, 2016, March 31, 2017 and June 26, 2017, 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.
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,
after the Determination Event, which occurred on August 12, 2016, the Class B Unitholders’ proportion of the total
distribution will fluctuate depending on the number of Class A Units outstanding. For the year ending December 31,
2017, 3.72% of net income was allocated to the Class B Units (year ended December 31, 2016 - 4.85%).
Following the occurrence of the Determination Event, the number of Class A Units to which the Class B Unitholder
is entitled upon exercising Conversion Rights (as defined in the LP Agreement) became fixed, and future issuances of
Class A Units will result in a decline in the Class B Unit Percentage Interest. Upon the Determination Event, which
occurred on August 12, 2016, the number of Class A Units into which the Class B Units may be converted was fixed
at 2,665,835 Class A Units.
The Conversion Rights may be exercised by the Managing GP at any time provided that:
(a) Pure Multi-Family 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 2,665,835 Class A 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-Family as was previously
designated in the form of Class B Units. Subject to applicable laws, Pure Multi-Family will re-designate all the
interests of Class B Unitholders into 2,665,835 Class A Units, effective as of the date that Pure Multi-Family receives
a notice of exercise of the Conversion Rights. Upon such occurrence and the exercise of the Conversion Rights by
the Class B Unitholders, the interests of Class B Unitholders will be re-designated as Class A Units. The Class B
Units will not be required to be redeemed or cancelled.
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-Family’s assets.
45
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
LIQUIDITY AND CAPITAL RESOURCES
Funds from Operations and Adjusted Funds from Operations
Funds from operations (“FFO”) is a non-IFRS measure, 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. Pure Multi-Family’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
entities operating results more meaningful.
As FFO excludes fair value adjustments, IFRIC 21 adjustments, 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, 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-Family’s method of calculating AFFO may differ from other companies and accordingly may not be
comparable to similar measures presented by other companies. Pure Multi-Family presents AFFO for both an earnings
and cash flow measure.
46
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
The following table provides the analysis of Pure Multi-Family’s FFO and AFFO performance:
($000’s, except percent and per unit basis)
For the
year ended
December 31,
2017
For the
year ended
December 31,
2016 (2)
For the three
months ended
December 31,
2017
For the three
months ended
December 31,
2016 (2)
Net income and comprehensive income
$ 43,196
$ 48,164
$ 3,078
$ 3,259
Adjustment:
Fair value adjustment to investment properties
Loss on disposal of investment property
Property tax adjustments on acquisition or sale
IFRIC 21 fair value adjustment to investment
properties
IFRIC 21 property tax liability adjustment, net
(17,602)
-
(2,910)
-
-
(26,498)
1,484
(2,943)
-
-
5,750
-
(1,302)
3,946
(3,946)
1,043
1,484
(1,202)
2,782
(2,782)
Funds from operations
$ 22,684
$ 20,207
$ 7,526
$ 4,584
Maintenance capital provision (1)
Accretion of convertible debentures
(1,870)
332
(1,540)
314
(540)
87
(403)
81
Adjusted funds from operations
$ 21,146
$ 18,981
$ 7,073
$ 4,262
Weighted average number of units (000’s)
Class A Units
Class B Units
Diluted weighted average number of units (000’s)
Class A Units
Class B Units
FFO per unit – Basic and Diluted
Class A Units
Class B Units
Payout Ratio on FFO
AFFO per unit – Basic and Diluted
Class A Units
Class B Units
Payout Ratio on AFFO
68,927,987
51,553,540
76,729,771
55,418,872
200,000
200,000
200,000
200,000
72,958,845
55,739,002
76,729,771
55,497,401
200,000
200,000
200,000
200,000
$ 0.32
$ 0.37
$ 0.10
$ 0.08
4.22
119.9%
4.90
101.5%
1.26
98.9%
1.05
119.7%
$ 0.30
$ 0.35
$ 0.09
$ 0.07
3.94
128.6%
4.60
108.0%
1.19
105.2%
0.98
128.8%
Notes:
(1) Calculated using an 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. See “Liquidity and Capital
Resources – Calculating Maintenance Capital Provision for AFFO”.
(2) Restated FFO and AFFO amounts for the three months and year ended December 31, 2016 to remove amortization of transaction costs and
mortgage prepayment expense.
47
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Calculating Maintenance Capital Provision for AFFO
In Q1 2017, REALpac issued updated guidance on maintenance capital expenditures to be used in the calculation of
AFFO. As a high degree of significant judgement is involved in classifying capital expenditures as value enhancing
or maintenance capital, Pure Multi-Family historically has applied a maintenance capital provision of $300 per
residential unit per annum, which is based on management’s experience and the location of former and current
investment properties. The $300 maintenance capital provision includes capital expenditures incurred at the
investment properties, in-suite or common area, which are required to maintain revenues at current levels and maintain
the residential suites and apartment facilities in current operating conditions. Value enhancing capital expenditures
include items such as in-suite upgrades and building enhancements that management believes will grow the investment
property net rental income.
The following table provides Pure Multi-Family’s total capital expenditures attributable to value enhancing and
maintenance capital for each of the last three fiscal years:
($000’s, except per percent and residential unit basis)
Value enhancing capital expenditures
Maintenance capital expenditures
Total capital expenditures
Maintenance capital - % of total capital
Portfolio average year of construction
# of residential units (1)
Maintenance capital expenditures per residential unit
Value enhancing capital expenditures per residential unit
Notes:
(1) Weighted average number of residential units within portfolio during the year.
For the year ended December 31,
2017
$ 3,052
1,870
$ 4,922
38%
2007
6,233
$ 300
$ 490
2016
$ 2,393
1,540
$ 3,933
39%
2006
5,132
$ 300
$ 466
2015
$ 1,631
1,289
$ 2,920
44%
2003
4,295
$ 300
$ 380
Management is of the view that the maintenance capital provision of $300 per residential unit per annum is an
appropriate provision to use in the calculation of AFFO, as it fairly represents the amount of maintenance capital
required to maintain the current revenues and condition of its investment properties, based on the location and year of
construction of such properties. As noted in the table above, the “Maintenance capital - % of total capital” has
decreased compared to each of the prior years. This is primarily the result of the steps we have taken to improve our
portfolio’s average year of construction. As newly constructed properties require less maintenance capital to keep
them in current condition, it would be expected that the trend of “Maintenance capital - % of total capital” will decrease
as the “Portfolio average year of construction” continues to improve. Management will continue to monitor the
maintenance capital provision currently being applied and adjust as necessary to reflect any changes as new locations
are added where the portfolio operates and to any changes in the portfolio average year of construction.
48
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
The following is a reconciliation of the Pure Multi-Family’s AFFO and FFO to cash provided by operations:
($000’s)
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
Amortization of transaction costs
Interest income
Interest expense
Distributions to subsidiary’s preferred
unitholders
For the
year ended
December 31,
2017
$ 21,146
1,870
(332)
For the
year ended
December 31,
2016 (1)
$ 18,981
1,540
(314)
For the three
months ended
December 31,
2017
$ 7,073
540
(87)
For the three
months ended
December 31,
2016 (1)
$ 4,262
403
(81)
22,684
451
(1,492)
380
12,167
782
-
332
638
(112)
21,133
16
20,207
(1,168)
(413)
163
1,503
168
-
314
655
(38)
18,831
16
7,526
(485)
(2,574)
158
(2,181)
(316)
3,946
87
181
(13)
5,903
4
4,584
(542)
(1,284)
(146)
(9,031)
(90)
2,782
81
194
(11)
4,677
4
Net cash provided from operating activities
$ 56,979
$ 40,238
$ 12,236
$ 1,218
Notes:
(1) Restated FFO and AFFO amounts for the three months and year ended December 31, 2016 to remove amortization of transaction costs and
mortgage prepayment expense.
Capital Resources
Cash generated by investment properties represents the primary source of funds to fund total distributions to
unitholders of $27,193,282 for the year ended December 31, 2017 (year ended December 31, 2016 - $20,504,317).
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-Family’s properties to transfer
funds to Pure Multi-Family.
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-Family intends to refinance any mortgages which
mature within six months of maturity.
Management expects to be able to meet all of Pure Multi-Family’s ongoing obligations and to finance future growth
through cash generated by operations, the issuance of securities and debt financing. Pure Multi-Family is not in default
or arrears on any of its obligations including distribution payments, interest or principal payments on debt.
Distributed Cash
In accordance with National Instrument 41-201, Pure Multi-Family is required to provide additional disclosure relating
to cash distributions.
49
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
For the years ended December 31, 2017 and 2016, cash provided from operating activities, less interest paid (“adjusted
cash provided from (used by) operating activities”), was greater than cash distributions declared. For the three months
ended December 31, 2017, adjusted cash provided from (used by) operating activities was less than cash distributions
declared, which was primarily due to the decrease in non-cash working capital items. For the three months ended
December 31, 2016, adjusted cash provided from (used by) operating activities, was less than cash distributions
declared due to a non-recurring expense in the amount of $5,188,836, incurred by Pure Multi-Family on the mortgage
refinancing of Prairie Creek Villas. Management expects that adjusted cash provided from (used by) operating
activities, on an annual basis, will exceed cash distributions declared.
($000’s)
Cash provided from operating activities
Less interest paid
Adjusted cash provided from (used by) operating
activities
Actual cash distributions declared
Surplus (shortfall) of cash from operating activities
over cash distributions declared
For the
year ended
December 31,
2017
56,979
(20,759)
$
For the
year ended
December 31,
2016
40,238
(18,651)
$
For the three
months ended
December 31,
2017
12,236
(5,547)
$
For the three
months ended
December 31,
2016
1,218
(4,329)
$
36,220
27,193
21,587
20,504
6,689
7,443
(3,111)
5,487
$
9,027
$
1,083
$
(755)
$
(8,598)
For the years ended December 31, 2017 and 2016, net income was greater than cash distributions declared. For the
three months ended December 31, 2017 and 2016, net income was less than cash distributions declared primarily due
to the combination of the timing and use of excess cash on the balance sheet held during the current period and the
acquisition of investment properties which were going through their stabilization period during the current period.
Management expects annual net income to continue to exceed cash distributions declared, over time.
($000’s)
Net income
Actual cash distributions declared
Surplus (shortfall) of net income over cash
distributions declared
CAPITAL STRUCTURE
For the
year ended
December 31,
2017
43,196
27,193
$
For the
year ended
December 31,
2016
48,164
20,504
$
For the three
months ended
December 31,
2017
3,078
7,443
$
For the three
months ended
December 31,
2016
3,259
5,487
$
$
16,003
$
27,660
$
(4,365)
$
(2,228)
Pure Multi-Family defines capital as the aggregate of partners’ capital, preferred units of subsidiary and long-term
debt. Pure Multi-Family’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-Family’s capital structure is
approved by the board of directors of the Governing GP through its periodic reviews.
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-Family for borrowed money (including the face amount
outstanding under any convertible debentures and any outstanding liabilities of Pure Multi-Family arising from the
issuance of subordinated notes, but excluding any premium in respect of indebtedness assumed by Pure Multi-Family
for which Pure Multi-Family 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-Family 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-Family.
Pure Multi-Family’s indebtedness is 53.4% as at December 31, 2017 (December 31, 2016 – 55.2%). Pure Multi-
50
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Family was in compliance with all of its investment and debt restrictions during the year ended December 31, 2017
and the year ended December 31, 2016.
Maintaining a relatively low indebtedness ratio is important in current economic conditions because it allows Pure
Multi-Family 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-Family’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 distributions paid to the unitholders on a regular basis. Pure Multi-Family declared distributions in
the amount of $26,193,594 to Class A Unitholders and $999,688 to Class B Unitholders during the year ended
December 31, 2017 (year ended December 31, 2016 - $19,514,630 and $989,687 respectively).
The capital structure consisted of the following components at December 31, 2017 and December 31, 2016:
($000’s)
Capital
Mortgages payable
Credit Facility
Convertible debentures
Preferred units of subsidiary
Partners’ capital
December 31, 2017
December 31, 2016
Change
$ 576,253
25,762
21,115
125
518,607
$ 447,827
-
20,793
125
370,162
$ 128,426
25,762
322
-
148,445
Total Capital
$ 1,141,862
$ 838,907
$ 302,955
The total capital of Pure Multi-Family increased from December 31, 2016 to December 31, 2017 primarily due to the
April 2017 and June 2017 Offerings, new mortgages and credit facility obtained on seven investment property
acquisitions, 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-Family’s financial instruments, including cash and cash equivalents, amounts receivable,
mortgage reserve fund, 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.
51
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
($000’s)
Mortgages payable
Credit facility payable
Convertible debentures
Preferred units of subsidiary
OFF-BALANCE SHEET ITEMS
December 31, 2017
Carrying
Amount
$ 576,253
25,762
21,115
125
Fair Value
$ 547,121
26,000
23,919
125
December 31, 2016
Carrying
Amount
$ 447,827
-
20,793
125
Fair Value
$ 440,116
-
25,151
125
Pure Multi-Family does not have any off-balance sheet items.
SECTION III
SUMMARY OF SELECTED ANNUAL INFORMATION
Pure Multi’s interest
($000’s, 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
For the
year ended
December 31, 2017
For the
year ended
December 31, 2016
For the
year ended
December 31, 2015
$ 93,099
$ 76,414
$ 58,876
49,859
43,196
1,170,675
1,133,501
652,068
618,692
27,193
$ 0.38
$ 5.00
41,692
48,164
853,372
778,547
483,210
465,139
20,504
$ 0.38
$ 4.95
32,696
51,179
691,153
613,682
386,879
372,776
15,810
$ 0.38
$ 3.95
$ 1.22
$ 12.79
Basic net income per Class A Unit
Basic net income per Class B Unit
$ 0.60
$ 8.04
$ 0.89
$ 11.67
Pure Multi-Family’s total assets and liabilities have increased significantly during the year ended December 31, 2017
due to investment property acquisitions and their related mortgages, the acquisition of a new credit facility, the
issuance of equity, and fair value increases of its investment properties. As at December 31, 2017, Pure Multi held 22
investment properties comprising 7,085 residential units and 6,450,687 gross rentable square feet, compared to 15
investment properties with 5,229 residential units and 4,774,758 gross rentable square feet as at December 31, 2016.
52
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Total rental revenue from the investment properties totaled $93.1 million for the year ended December 31, 2017
compared to $76.4 million for the year ended December 31, 2016. This increase is reflective of the increase in the
number of days the investment properties were operating during 2017 compared to 2016, 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.
SUMMARY OF QUARTERLY RESULTS
During the three months ended December 31, 2017, based on Pure Multi’s interest:
•
•
•
Total assets increased to $1,170,675,160 from $1,115,605,699 as at September 30, 2017. This increase was
primarily due to the acquisition of investment properties during the current quarter, which were partially
funded through debt. As at December 31, 2017, Pure Multi-Family had cash and cash equivalents of
$25,862,723, funds held in trust of $nil, and investment properties of $1,133,501,407, compared to
$59,676,112, $32,737,300 and $1,013,652,235, respectively, as at September 30, 2017.
Total liabilities increased to $652,068,282 from $592,617,809 as at September 30, 2017. This increase was
primarily due to an increase in mortgages payable and the acquisition of a credit facility.
Partners’ capital decreased to $518,606,878 from $522,983,890 as at September 30, 2017. This decrease was
a result of distributions declared to unitholders, being partially offset by net income earned during the quarter.
• Pure Multi-Family earned rental revenue of $26,200,371 from investment properties (three months ended
December 31, 2016 - $20,115,884). These properties incurred operating expenses of $11,124,393, resulting
in net rental income of $15,075,978 during the three months ended December 31, 2017 (three months ended
December 31, 2016 - $9,844,692 and $10,271,192, respectively). The increase in rental revenue, operating
expenses and net rental income, compared to the prior year, are primarily attributable to Pure Multi-Family
operating additional investment properties, the elimination of property management fees in the current
quarter due to the internalization of the property management function, and organic rental revenue growth,
which was partially offset by an increase in property tax expense.
•
•
•
Pure Multi-Family incurred interest expense of $6,170,566 and distributions to subsidiary’s preferred
unitholders of $3,906 (three months ended December 31, 2016 - $4,952,174 and $3,906, respectively). The
increase in net finance expense was primarily due to the additional mortgage interest costs during the period.
Pure Multi-Family incurred general and administrative expenses of $1,683,447, fair value adjustment gain to
investment properties of $4,448,216 and franchise tax expense of $129,407 (three months ended December
31, 2016 - $567,793, $159,519 and $101,969, respectively). General and administrative expenses increased
in the quarter primarily due to one-time internalization costs of $219,217 incurred to transition from an
external management system to a fully internalized one and the additional related costs arising from
internalization, such as office space, salaries and systems support.
Pure Multi-Family earned net income of $3,077,869 (three months ended December 31, 2016 - $3,259,020),
as a result of the above transactions.
53
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Pure Multi’s interest
Quarter ended
($000’s, 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
($000’s, 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
As at
($000’s)
Total assets
Total liabilities
Partners’ capital
Investment properties
Mortgages payable
As at
($000’s)
Total assets
Total liabilities
Partners’ capital
Investment properties
Mortgages payable
December 31,
2017
September 30,
2017
June 30,
2017
$ 26,200
$ 24,257
$ 21,804
March 31,
2017
$ 20,837
11,124
15,076
(6,171)
(1,683)
(4,448)
3,078
0.04
0.52
11,888
12,369
(5,704)
(1,645)
1,730
6,668
0.08
1.12
10,491
11,313
(5,187)
(1,240)
11,615
16,407
0.24
3.19
9,738
11,099
(5,042)
(799)
11,615
17,043
0.29
3.87
December 31,
2016
September 30,
2016
June 30,
2016
$ 20,116
$ 19,864
$ 19,369
March 31,
2016
$ 17,066
9,845
10,271
(4,952)
(568)
160
3,259
0.06
0.75
9,158
10,706
(5,996)
(322)
9,754
14,163
0.26
3.42
8,400
10,969
(4,705)
(282)
8,264
14,248
0.28
3.56
December 31,
2017
September 30,
2017
June 30,
2017
$ 1,170,675
$ 1,115,602
$ 1,061,323
652,068
518,607
1,133,501
576,253
592,618
522,984
1,013,652
543,906
537,571
523,752
961,684
497,002
December 31,
2016
September 30,
2016
June 30,
2016
$ 853,372
$ 868,683
$ 793,016
483,210
370,162
778,547
447,827
505,917
362,766
834,465
463,837
467,476
325,540
752,412
430,518
7,320
9,746
(4,146)
(268)
11,262
16,494
0.32
4.12
March 31,
2017
$ 898,779
517,142
381,637
871,129
483,090
March 31,
2016
$ 777,579
461,650
315,929
743,132
431,106
The selected quarterly information noted above highlights fluctuations over the most recently completed eight
quarters. The fluctuations are generally due to the timing of new investment property acquisitions, dispositions and
54
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
fair value changes of the investment properties under IFRS, and are not generally reflective of seasonality or
cyclicality. Operating expenses include property tax expense related to the investment properties. Depending on
when prior period property tax appeals are settled, the operating expenses can demonstrate volatility due to nature of
the timing of when the property tax appeal settlement is recognized into the operating expenses.
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-Family’s significant accounting policies are described in note 3 to
the December 31, 2017 audited consolidated financial statements, available on SEDAR at www.sedar.com and on
Pure Multi-Family’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-Family’s significant accounting policies are described in note 3 to the December 31, 2017 audited
consolidated financial statements, available on SEDAR at www.sedar.com and on Pure Multi-Family’s website at
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)”).
55
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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.
Pure Multi-Family will adopt IFRS 9 (2014) in its consolidated financial statements for the annual period
beginning on January 1, 2018. Management has determined there will be no material impact on the 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. 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 that fall in the scope of other IFRSs.
Pure Multi-Family will to adopt IFRS 15 in its consolidated financial statements for the annual period beginning
on January 1, 2018. Management has determined there will be no 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-Family intends to adopt IFRS 16 in its consolidated financial statements for the annual period
beginning on January 1, 2019. Management does not expect the standard to have a material impact on the
consolidated financial statements.
56
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
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-Family’s risk management framework. Pure Multi-Family’s risk management policies are established to
identify and analyze the risks faced by Pure Multi-Family, 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-Family’s activities.
In the normal course of business, Pure Multi-Family 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-Family is exposed to financial risk from the interest
rate differentials between the market rate and the rates used on these financial instruments.
Pure Multi-Family manages its financial instruments and interest rate risks based on its cash flow needs. Pure Multi-
Family 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 50% to 60% and is restricted under the LP Agreement
to a maximum of 70%. As Pure Multi-Family does not have any mortgages payable maturing prior to 2019 and all of
the mortgages payable bear interest at fixed rates, with only the outstanding credit facility bearing interest at a variable
rate, Pure Multi-Family does not face significant interest rate risk in the context of its outstanding debt.
The profile of Pure Multi-Family’s interest-bearing financial instruments was:
($000’s)
Fixed rate instruments
Mortgages payable
Credit facility
Convertible debentures
Preferred units of subsidiary
Face Value
December 31, 2017 December 31, 2016
$ 580,756
26,000
22,780
125
$ 629,661
$ 451,427
-
22,990
125
$ 474,542
57
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Credit Risk
Credit risk is the risk of financial loss to Pure Multi-Family if a tenant, customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from Pure Multi-Family’s receivables from
tenants.
Pure Multi-Family’s exposure to credit risk is influenced mainly by the individual characteristics of each tenant. Pure
Multi-Family, 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-Family 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-Family may experience difficulty renewing leases as
they expire or in re-leasing space vacated by tenants upon lease expiry. All leases of Pure Multi-Family’s investment
properties have lease terms of one year or less. Typically, Pure Multi-Family instructs its property managers to initiate
the renewal process before the existing leases expire. For any vacant spaces, Pure Multi-Family uses qualified leasing
agents to actively market the spaces.
Class A Unit Prices
It is not possible to predict the price at which Class A 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-Family. Accordingly, the Class
A Units may trade at a premium or discount to the value implied by the value of Pure Multi-Family’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-Family’s control.
Environmental Risk
As an owner of real property, Pure Multi-Family 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-Family’s
ability to vary its portfolio promptly in response to changing economic or investment conditions. If Pure Multi-Family
were required to liquidate a real property investment, the proceeds to Pure Multi-Family might be significantly less
than the aggregate carrying value of such property.
Liquidity risk is the risk that Pure Multi-Family will not be able to meet its financial obligations as they fall due. Pure
Multi-Family’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-Family intends to refinance any mortgages which mature within six
months.
58
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
The following table provides the future non-discounted scheduled payments of financial liabilities, including estimated
interest payments:
Year ended December 31,
($000’s)
Mortgages payable (principal
and interest)
Credit facility (principal and
interest)
Convertible debentures payable
(principal and interest)
Preferred units of subsidiary
(principal and interest)
Accounts payable and accrued
liabilities
Total
Tax Risk
2018
2019
2020
2021
2022
2023 and
thereafter
$ 25,906
$ 87,208
$ 25,878
$ 62,565
$ 54,102
$ 502,282
946
946
26,868
1,481
1,481
23,891
16
16
16
-
-
16
-
-
-
-
16
140,625
25,498
-
-
-
-
-
$ 53,847
$ 89,651
$ 76,653
$ 62,581
$ 54,118
$ 642,907
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-Family.
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-Family or its unitholders.
Administration in the United States
The Administration in the United States may bring about changes in social, political, regulatory, tax and economic
conditions or in laws and policies governing foreign trade, development and investment that could potentially cause
significant volatility in global financial markets, including in global currency and debt markets. Such volatility could
cause a slowdown in economic activities in the United States, Canada or globally, which could adversely affect Pure
Multi-Family’s operating results and growth prospects, the extent of which may not be identifiable as of the date
hereof.
RELATED PARTY TRANSACTIONS
Managing GP
Pure Multi-Family is related to the Managing GP, by virtue of having an officer and director in common (Stephen
Evans). Pure Multi-Family declared distributions to the Managing GP in the amount of $999,688 during the year
ended December 31, 2017 ($989,687 during the year ended December 31, 2016). Included in accounts payable and
accrued liabilities at December 31, 2017 was $nil (December 31, 2016 - $nil) payable to the Managing GP.
59
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
MD&A – December 31, 2017
Tipton Asset Group, Inc.
Tipton Asset Group, Inc. (“Tipton”) was the property manager for Pure Multi-Family up until September 30, 2017.
Pure Multi-Family is related to Tipton by virtue of having an officer and director in common (Bryan Kerns) with a
subsidiary of Pure Multi-Family. Tipton charged property management fees in the amount of $1,858,703 during the
year ended December 31, 2017 (year ended December 31, 2016 $2,301,288). During the year ended December 31,
2017, Tipton charged due diligence and acquisition analysis fees of $706,741 (year ended December 31, 2016 - $nil),
which were capitalized upon the acquisition of the related properties. Included in accounts payable and accrued
liabilities at December 31, 2017 was $nil (December 31, 2016 - $nil) payable to Tipton.
Asset Management Agreement
Effective September 1, 2016, Pure Multi-Family terminated its Asset Management Agreement with the Managing GP,
as permitted upon the triggering of the Determination Event. No penalties were incurred upon termination of the
Asset Management Agreement
Compensation
The Directors 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 indirectly reimburses such directors for any out of pocket expenses, including out of pocket
expenses for attending meetings. Pure Multi-Family reimburses the Governing GP for such amounts. In addition,
Pure Multi-Family has obtained insurance coverage for such directors. Compensation is reviewed on an annual basis,
giving consideration to Pure Multi-Family’s growth and the extent of its portfolio.
As part of the internalization of asset management, as described in Asset Management Agreement, certain key
personnel of the Managing GP became corporate employees of a subsidiary of Pure Multi-Family effective September
1, 2016.
Key corporate personnel have the authority and responsibility for planning, directing and controlling the activities of
Pure Multi-Family, directly or indirectly. Pure Multi-Family’s key personnel include the Chief Executive Officer,
Chief Financial Officer, Vice Presidents and the Directors. Salaries, bonuses, directors’ fees and other short-term
employee benefits and incentives are accrued when earned and are as follows:
($000’s)
For the year ended
December 31, 2017 December 31, 2016
Salaries, directors’ fees, and other short-term benefits
$ 1,897
$
505
There was no unit based compensation expense incurred by Pure Multi-Family during the years ended December 31,
2017 and December 31, 2016.
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.
As at March 7, 2018, the following of Pure Multi-Family’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 a maximum of 2,665,835 Class A Units;
(b) 76,731,540 Class A Units; and
60
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
MD&A – December 31, 2017
(c) 22,770 Convertible Debentures. The Convertible Debentures are convertible at the option of the holder and
redeemable by Pure Multi-Family in accordance with the terms of the trust indenture dated August 7, 2013.
See “Financial Condition – Convertible Debentures”.
SECTION VI
SUBSEQUENT EVENTS
a) On February 2, 2018, 10 of the remaining outstanding 22,780 6.5% convertible debentures were converted
into 1,769 Class A Units.
ADDITIONAL INFORMATION
Additional information relating to Pure Multi-Family is available on SEDAR at www.sedar.com and on Pure Multi-
Family’s website at www.puremultifamily.com.
TRADING SYMBOLS
TSX Venture Exchange: RUF.U, RUF.UN, RUF.DB.U
OTCQX: PMULF
61
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Brackenridge at Midtown, San Antonio, Texas
62
PURE MULTI-FAMILY REIT LP ANNUAL REPORT Consolidated Financial statements
For the year ended December 31, 2017
dated March 7, 2018
63
ANNUAL REPORT PURE MULTI-FAMILY REIT LP THIS PAGE IS LEFT INTENTIONALLY BLANK
64
PURE MULTI-FAMILY REIT LP ANNUAL REPORT KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
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, 2017 and 2016, 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.
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.
65
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Page 2
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, 2017
and 2016, and its consolidated financial performance and its consolidated cash flows for
the years then ended in accordance with International Financial Reporting Standards.
March 7, 2018
Vancouver, Canada
66
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Consolidated Statement of Financial Position
(expressed in thousands of United States dollars)
December 31, 2017
December 31, 2016
ASSETS
Non-current assets
Investment properties (note 4)
$
1,133,501
$
778,547
Current assets
Prepaid expenses
Mortgage reserve fund (note 5)
Amounts receivable
Cash held in trust
Cash and cash equivalents
3,361
6,421
1,529
-
25,863
37,174
1,869
5,194
1,980
45,179
20,603
74,825
TOTAL ASSETS
$
1,170,675
$
853,372
LIABILITIES
Non-current liabilities
Mortgages payable (note 6)
Credit Facility (note 7)
Convertible debentures (note 8)
Preferred units of subsidiary (note 9)
Current liabilities
Mortgages payable (note 6)
Rental deposits
Unearned revenue
Accounts payable and accrued liabilities
TOTAL LIABILITIES
PARTNERS’ CAPITAL (note 10)
$
$
571,690
25,762
21,115
125
618,692
4,563
1,548
1,767
25,498
33,376
652,068
518,607
TOTAL LIABILITIES AND PARTNERS’ CAPITAL
$
1,170,675
$
Subsequent event (note 20)
The accompanying notes are an integral part of these consolidated financial statements
444,221
-
20,793
125
465,139
3,606
1,168
985
12,312
18,071
483,210
370,162
853,372
67
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Consolidated Statement of Partners’ Capital
(expressed in thousands of United States dollars)
Balance,
December 31, 2016
Issuance of units
Offering costs
Debenture conversion
Distributions to limited partners
Net income for the period
Balance,
December 31, 2017
Limited
Partners
Class A
Limited
Partners
Class B
General
Partner
Other Equity
Items (note 10)
Accumulated
Earnings
Total
$
269,187 $
1,000
$
138,398
(6,147)
210
-
-
-
-
-
-
-
-
-
-
-
-
-
$
1,984
$
97,991
$
370,162
-
-
(19)
-
-
-
-
-
138,398
(6,147)
191
(27,193)
(27,193)
43,196
43,196
$
401,648 $
1,000
$
-
$
1,965
$
113,994
$
518,607
Balance,
December 31, 2015
Issuance of units
Conversion of warrants, net
of costs
Offering costs
Debenture conversion
Distributions to limited
partners
Net income for the period
Balance,
December 31, 2016
Limited
Partners
Class A
Limited
Partners
Class B
General
Partner
Other Equity
Items (note 10)
Accumulated
Earnings
Total
$ 230,278
$ 1,000
$ -
$ 2,665
$ 70,331
$ 304,274
39,639
680
(1,420)
10
-
-
-
-
-
-
-
-
-
-
-
(680)
-
(1)
-
-
-
-
39,639
-
(1,420)
9
(20,504)
(20,504)
48,164
48,164
$ 269,187
$ 1,000
$ -
$ 1,984
$ 97,991
$ 370,162
The accompanying notes are an integral part of these consolidated financial statements
68
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Consolidated Statement of Income and Comprehensive Income
(expressed in thousands of United States dollars, except units and per unit amounts)
December 31, 2017
December 31, 2016
$
93,099
$
76,414
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 11)
Distributions to subsidiary’s preferred unitholders
NET OTHER INCOME (EXPENSES)
Other income (expenses)
General and administrative
Fair value adjustments to investment properties (note 4)
Franchise tax
Loss on disposal of investment properties (note 4)
1,908
1,859
15,647
20,916
40,330
52,769
112
(22,104)
(16)
(22,008)
663
(5,369)
17,602
(461)
-
12,435
1,588
2,301
11,185
16,706
31,780
44,634
38
(19,799)
(16)
(19,777)
18
(1,438)
26,498
(287)
(1,484)
23,307
NET INCOME AND COMPREHENSIVE INCOME
$
43,196
$
48,164
Earnings per Class A unit
Basic
Diluted (note 19)
Weighted average number of Class A units
Basic
Diluted (note 19)
Earnings per Class B unit
Basic
Diluted
Weighted average number of Class B units
Basic and diluted
$ 0.60
$ 0.60
$
$
0.89
0.86
68,926,987
72,958,845
51,553,540
55,739,002
$ 8.04
7.96
$
$
$
11.67
11.67
200,000
200,000
The accompanying notes are an integral part of these consolidated financial statements
69
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Year ended
Cash provided by (used in)
OPERATIONS
Net income
Items not involving cash:
Amortization of transaction costs and accretion of
convertible debentures
Fair value adjustments to investment properties (note 4)
Property tax adjustments on acquisitions
Property tax adjustments on sale
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 13)
INVESTING
Acquisitions of investment properties
Capital additions to investment properties
Cash held in trust
Interest received
Proceeds received on disposal of investment properties
Disposition costs on disposal of investment properties
FINANCING
Distribution paid to subsidiary’s preferred unitholders
Distributions paid to limited partners
Interest paid
Mortgage proceeds received
Repayment of mortgages payable
Credit facility received
Repayment of credit facility
Funds from mortgage reserve fund
Payment of finance transaction costs
Proceeds from the issuance of limited partner units
Unit offering costs
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
CASH AND CASH EQUIVALENTS, END OF PERIOD
Supplemental cash flow information:
Non-cash financing:
Pure Multi-Family REIT LP
Consolidated Statement of Cash Flows
(expressed in thousands of United States dollars)
December 31, 2017 December 31, 2016
$ 43,196
$
48,164
970
(17,602)
(2,910)
-
-
(112)
21,134
16
12,288
56,980
(329,520)
(4,922)
45,179
112
-
-
(289,151)
(16)
(26,548)
(20,759)
133,000
(3,671)
29,000
(3,000)
(1,227)
(1,599)
138,398
(6,147)
237,431
5,260
20,603
$ 25,863
$
968
(26,498)
(3,067)
125
1,484
(38)
18,831
16
253
40,238
(188,592)
(3,933)
(22,474)
38
57,100
(1,484)
(159,345)
(16)
(20,285)
(18,651)
121,000
(26,649)
-
-
1,377
(1,213)
39,640
(1,420)
93,783
(25,324)
45,927
20,603
Distributions to the limited partners included in accounts
payable and accrued liabilities
Conversion of convertible debentures
$ 2,398
191
$ 1,752
9
The accompanying notes are an integral part of these consolidated financial statements
70
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
1.
PURE MULTI-FAMILY REIT LP INFORMATION
Pure Multi-Family REIT LP (“Pure Multi-Family”) 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-
Family was established by Pure Multifamily 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-Family’s
head office and address for service is located at 910 – 925 West Georgia Street, Vancouver, British Columbia,
V6C 3L2.
Pure Multi-Family was established for, among other things, the purposes of:
•
•
•
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-Family and making distributions to Unitholders;
in connection with the undertaking set out above, reinvesting income and gains of Pure Multi-Family and
taking other actions besides the mere protection and preservation of Pure Multi-Family 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, 2017 were authorized for issue by
the Board of Directors of the Governing GP (the “Board”) on March 7, 2018.
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-Family’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(R).
C. Functional and presentation currency
These consolidated financial statements are presented in United States dollars, which is Pure Multi-
Family’s functional currency.
71
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
D. Presentation of financial statements
Pure Multi-Family 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-Family 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-Family and its
subsidiaries, over which Pure Multi-Family has control. Control exists when Pure Multi-Family 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.
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-Family and its subsidiaries.
B. Translation of foreign currency
The functional and reporting currency of Pure Multi-Family is United States dollars. Pure Multi-Family
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.
C. 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(R).
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.
D. 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-Family 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
72
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
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 consolidated statement of
income and comprehensive income in the period in which they arise.
An investment property is derecognized when it has been disposed of and no future economic benefit is
expected from its disposal. Any gains or losses on the disposal of an investment property are recognized in
the consolidated statement of income and comprehensive income in the period of disposal.
E. Fair value
Pure Multi-Family 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.
F. Impairment of financial assets
At each reporting date, Pure Multi-Family 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.
G. 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-Family’s designation of such instruments.
Pure Multi-Family 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
73
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
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.
H. Cash and cash equivalents
Cash and cash equivalents consists of cash on hand and cash held at banks.
I. Cash held in trust
Cash held in trust consists of funds held in trust and refundable deposits, held pursuant to agreements of
purchase and sale, which are to be used for the acquisition of investment properties.
J. Convertible debentures
Convertible debentures issued by Pure Multi-Family are converted into Class A units (each a “Class A
Unit”) of Pure Multi-Family 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. 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.
K. Operating segments
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. Pure Multi-
Family currently operates in one business segment, the owning and operating of multifamily apartment
properties in the sun-belt area in the United States.
L. 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.
74
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
M. 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-Family to the lessees are accounted for as finance leases.
All current leases of Pure Multi-Family are operating leases.
N. 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.
O. Taxes
(i) Income Taxes
Pure Multi-Family is not subject to tax under Part I of the Income Tax Act (Canada) (the “Tax Act”).
Each partner of Pure Multi-Family 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-Family 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.
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-Family 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-Family in such a manner so as to remain exempt from the SIFT Measures on a continuous basis
in the future. If Pure Multi-Family 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-Family 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-Family’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-Family 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-Family’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
75
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
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. 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.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act
(“U.S. Tax Reform”). The U.S. Tax Reform made many significant changes to the U.S. federal tax
laws, including reducing the U.S. federal corporate income tax rate from 35% to 21% effective as of
January 1, 2018. Future regulations and interpretations to be issued by U.S. authorities may impact the
Pure Multi-Family’s estimates and assumptions used in calculating its income tax provisions.
Pure Multi-Family’s indirect Canadian subsidiary, Pure Multi-Family Management Ltd. (“Management
Co”), is a taxable Canadian corporation subject to Canadian income tax. Income tax expense comprises
current tax. Current tax is recognized in net earnings.
Current income tax is the expected tax payable or receivable on the taxable income or loss for the period
using tax rates enacted or substantively enacted by the reporting date, and any adjustment to tax payable
in respect of previous years.
(ii) Texas Franchise Tax
Texas Franchise Tax applicable to Pure Multi-Family, for its investment properties operated in Texas
during the year ended December 31, 2017, is equal to 0.75% 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-Family has recorded a provision for
Texas Franchise Tax of $460,952 for the year ended December 31, 2017 (year ended December 31,
2016 - $287,241), which is included within other expenses in the consolidated statement of income and
comprehensive income.
P. 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.
Q. Provisions
Provisions are recognized by Pure Multi-Family when: (i) Pure Multi-Family 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 expense.
R. 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.
76
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
(i) Judgments
In the process of applying Pure Multi-Family’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:
a) Asset acquisitions
Pure Multi-Family, through the US REIT, acquires individual real estate properties. At the time of
acquisition, Pure Multi-Family considers whether or not the acquisition represents the acquisition of
a business. Pure Multi-Family 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-Family have been determined to be asset acquisitions.
(ii) Estimates
The significant areas of estimation include the following:
a) 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, 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.
77
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
S. Accounting standards not yet adopted
(i) 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.
Pure Multi-Family will adopt IFRS 9 (2014) in its consolidated financial statements for the annual
period beginning on January 1, 2018. Management has determined there will be no material impact on
the consolidated financial statements.
(ii) 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, but do no 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 that fall in the scope of other IFRSs.
Pure Multi-Family will adopt IFRS 15 in its consolidated financial statements for the annual period
beginning on January 1, 2018. Management has determined there will be no material impact on the
consolidated financial statements.
(iii) 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.
78
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
Pure Multi-Family intends to adopt IFRS 16 in its consolidated financial statements for the annual
period beginning on January 1, 2019. Management does not expect the standard to have a material
impact on the consolidated financial statements.
4.
INVESTMENT PROPERTIES
Balance, as at December 31, 2016
Acquisitions
Property tax adjustments on acquisitions and dispositions
Capital additions
Fair value adjustments to investment properties
Balance, as at December 31, 2017
Balance, as at December 31, 2015
Acquisitions
Dispositions
Property tax adjustments on acquisitions and dispositions
Capital additions
Fair value adjustments to investment properties
Balance, as at December 31, 2016
2017
$ 778,547
329,520
2,910
4,922
17,602
$ 1,133,501
2016
$ 613,682
188,592
(57,100)
2,942
3,933
26,498
$
778,547
The investment properties are pledged as security against the mortgages payable.
A. 2017 Acquisitions
On January 25, 2017, Pure Multi-Family, through the US REIT, acquired PURE Creekside at Onion Creek
(“Creekside”), a multi-family apartment community, located in Austin, Texas, for a purchase price of
$40,000,000, plus standard closing costs and adjustments. This acquisition was financed with cash, cash held
in trust and a new 10-year mortgage in the amount of $20,000,000.
On January 27, 2017, Pure Multi-Family, through the US REIT, acquired the Lansbrook at Twin Creeks
(“Lansbrook”), a multi-family apartment community, located in Dallas, Texas, for a purchase price of
$40,000,000, plus standard closing costs and adjustments. This acquisition was financed with cash, cash held
in trust and a new 5-year mortgage in the amount of $16,500,000.
On June 9, 2017, Pure Multi-Family, through the US REIT, acquired PURE Park 28 (“Park 28”), a multi-family
apartment community, located in Phoenix, Arizona, for a purchase price of $29,700,000, plus standard closing
costs and adjustments. This acquisition was financed with cash and a new 15-year mortgage in the amount of
$14,850,000.
On June 15, 2017, Pure Multi-Family, through the US REIT, acquired the Pinnacle at Union Hills (“Pinnacle”),
a multi-family apartment community, located in Phoenix, Arizona, for a purchase price of $47,500,000, plus
standard closing costs and adjustments. This acquisition was financed with cash. Subsequent to the acquisition,
on July 7, 2017, Pure Multi-Family obtained a new 7-year mortgage in the amount of $23,750,000, secured by
Pinnacle.
79
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
On July 11, 2017, Pure Multi-Family, through the US REIT, acquired Pure at La Villita (“La Villita”), a multi-
family apartment community, located in Dallas, Texas, for a purchase price of $48,800,000, plus standard
closing costs and adjustments. This acquisition was financed with cash and a new 15-year mortgage in the
amount of $24,400,000.
On October 2, 2017, Pure Multi-Family, through the US REIT, acquired Pure Farmers Market Apartments
(“Farmers Market”), a multi-family apartment community, located in Dallas, Texas, for a purchase price of
$66,350,000, plus standard closing costs and adjustments. This acquisition was financed with cash and a new
12-year mortgage in the amount of $33,500,000.
On November 29, 2017, Pure Multi-Family, through the US REIT, acquired Pure Fillmore Apartments
(“Fillmore”), a multi-family apartment community, located in Phoenix, Arizona, for a purchase price of
$55,947,140, plus standard closing costs and adjustments. This acquisition was financed with cash and
$29,000,000 from a new secured corporate credit facility (see note 7).
B. 2016 Acquisitions
On March 1, 2016, Pure Multi-Family, through the US REIT, acquired Pure View at TPC (“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 and a new 15-year mortgage
in the amount of $39,000,000.
On March 1, 2016, Pure Multi-Family, through the US REIT, acquired Pure Estates at TPC (“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 and a new 8-year mortgage
in the amount of $39,000,000.
On September 14, 2016, Pure Multi-Family, through the US REIT, acquired The Avenue on Fairmount
Apartments (“Avenue”), a multi-family apartment community, located in Dallas, Texas, for a purchase price
of $71,000,000, plus standard closing costs and adjustments. This acquisition was financed with cash and a
new 12-year mortgage in the amount of $43,000,000.
C. Disposals
There were no disposals of properties during the year ended December 31, 2017.
On November 4, 2016, Pure Multi-Family, through the US REIT, sold Livingston Apartments (“Livingston”),
a multi-family apartment community, located in Dallas, Texas, for a sale price of $34,300,000, less standard
closing costs and adjustments. The mortgage payable, that was secured by Livingston, was paid in full as of
the same date.
On November 17, 2016, Pure Multi-Family, through the US REIT, sold Fairways at Prestonwood
(“Prestonwood”), a multi-family apartment community, located in Dallas, Texas, for a sale price of 22,800,000,
less standard closing costs and adjustments.
The 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
Loss on disposal of investment properties
2017
-
-
-
-
-
$
2016
57,100
(1,484)
55,616
(57,100)
$
(1,484)
80
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
D. Valuations
Investment properties are carried at fair value. As set out in note 3(R), 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. 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-Family does not obtain appraisals for each property at each reporting date. Where Pure Multi-
Family 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 years ended December 31, 2017 and 2016, Pure Multi-Family obtained
independent appraisals throughout the period on all of the investment properties it held at December 31, 2017
and at December 31, 2016, respectively. As disclosed in note 3(R), where appropriate, management
incorporated these appraisals in its determination of fair value for each of the investment properties.
The significant assumptions made relating to the valuations of the investment properties are set out below:
December 31, 2017
December 31, 2016
Weighted
average
Range
Weighted
average
Range
Capitalization rate
5.17%
4.75% - 6.00%
5.41% 4.75% - 6.00%
5. 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.
81
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
6. MORTGAGES PAYABLE
Nominal
interest rate
Year of
maturity
December 31, 2017 December 31, 2016
Face value
Face value
Valley Ranch
Prairie Creek
Bear Creek
Hackberry Creek
Deer Park
Fountainwood
Walker Commons
Preserve
San Brisas
Park West
Amalfi
Brackenridge
Pure Estates
Pure View
The Avenue
Creekside
Lansbrook
Park 28
Pinnacle at Union Hill
La Villita
Farmers Market
3.51%
4.07%
3.45%
3.90%
4.21%
4.46%
3.11%
3.26%
3.26%
4.02%
3.83%
3.72%
3.96%
3.92%
3.40%
3.98%
3.27%
3.84%
3.32%
3.81%
3.67%
$
2022
2030
2019
2028
2023
2023
2019
2021
2021
2030
2027
2027
2024
2031
2028
2027
2022
2032
2024
2032
2029
Total mortgages principal payable
Unamortized mortgage transaction costs
Total carrying value of mortgages payable
Less current portion
Non-current portion
$
13,680
44,705
32,080
29,500
15,811
12,278
28,470
23,983
16,554
36,500
45,000
30,600
37,824
37,771
43,000
20,000
16,500
14,850
23,750
24,400
33,500
580,756
(4,503)
576,253
4,563
13,680
45,590
32,080
29,500
16,098
12,511
28,470
24,479
16,896
36,500
45,000
30,600
38,484
38,539
43,000
-
-
-
-
-
-
451,427
(3,600)
447,827
3,606
$
571,690
$
444,221
The mortgages payable are recorded at amortized cost and bear a weighted average effective interest rate of
3.72% as at December 31, 2017 (December 31, 2016 – 3.74%).
The mortgages payable are secured by charges on Pure Multi-Family’s investment properties.
82
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
Principal repayments, as of December 31, 2017, based on scheduled repayments to be made on the mortgages
payable over the next five years and thereafter are as follows:
2018
2019
2020
2021
2022
Thereafter
$ 4,563
66,716
7,019
44,286
37,665
420,507
$ 580,756
7.
CREDIT FACILITY
On November 28, 2017, Pure Multi-Family entered into a secured revolving credit agreement (the “Facility”),
through the US REIT, with a total commitment available of up to $50 million. The contract period is 3 years
in duration and interest is calculated using the effective interest rate, which was 3.64% for 2017. Amounts
drawn under the Facility will bear interest at a variable rate initially equal to: (i) LIBOR plus a margin ranging
from 1.55% to 2.20% per annum, or (ii) a base rate plus a margin ranging from 0.55% to 1.20% per annum.
As at December 31, 2017, a balance of $26 million was outstanding. The Facility is secured by the Fillmore
investment property.
Balance as at December 31, 2016
Credit facility draws
Credit facility repayments
Credit facility financing costs
Amortization of transaction costs
Balance as at December 31, 2017
8.
CONVERTIBLE DEBENTURES
Face Value
$ -
29,000
(3,000)
-
-
$ 26,000
Carrying Value
$ -
29,000
(3,000)
(245)
7
$ 25,762
On August 7, 2013, Pure Multi-Family 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-Family, 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-Family at
any time. During the year ended December 31, 2017, 210 of the originally issued 23,000 6.5% convertible
debentures were converted into Class A Units (December 31, 2016 – 10 Class A Units). At December 31,
2017, $22,780,000 of the face value of the 6.5% convertible debentures was outstanding.
83
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
The following summarizes the face and carrying values of the 6.5% convertible debentures:
Balance as at December 31, 2016
Conversion of convertible debenture
Amortization of transaction costs
Accretion of liability component
Balance as at December 31, 2017
Balance as at December 31, 2015
Conversion of convertible debenture
Amortization of transaction costs
Accretion of liability component
Convertible
Debentures
Face Value
$ 22,990
(210)
-
-
22,780
$ 23,000
(10)
-
-
Liability
Component
Carrying Value
Equity
Component
Carrying Value
$ 20,793
$ 1,984
(191)
181
332
21,115
(19)
-
-
1,965
$ 20,320
$ 1,985
(9)
168
314
(1)
-
-
Balance as at December 31, 2016
$ 22,990
$ 20,793
$ 1,984
9.
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-Family.
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-Family declared distributions of $15,625 during the year ended December 31, 2017 to the preferred
unitholders (year ended December 31, 2016 - $15,625).
10.
PARTNERS’ CAPITAL
A. Limited Partners and General Partner
The capital of Pure Multi-Family consists of an unlimited number of units of Pure Multi-Family and the interest
held by the Governing GP. The Governing GP has made a capital contribution of $20 to Pure Multi-Family
and has no further obligation to contribute capital.
84
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
On May 30, 2012, the Managing GP subscribed for 200,000 Class B units (each a “Class B Unit”) of Pure
Multi-Family. On August 12, 2016, a Determination Event, as defined in the LP Agreement, occurred as a
result of Pure Multi-Family’s market capitalization exceeding $300,000,000 for a period of 10 consecutive
trading days. Upon the occurrence of the Determination Event, the number of Class A Units, into which the
Class B Units may be converted to, was fixed at 2,665,835. Pure Multi-Family has not issued any additional
Class B Units.
As defined in the LP Agreement, the Governing GP has discretion to allocate revenue and expenses on a basis
which ensures a fair distribution among unitholders. For the years ended December 31, 2017 and 2016, the
Governing GP has allocated the revenue and expenses based on the weighted average number of Class A Units
outstanding during the reporting periods and the respective Class B Units, per the Specified Ratio, as described
in the LP Agreement. For the year ended December 31, 2017, 3.72% of net income was allocated to the Class
B Units (year ended December 31, 2016 - 4.85%).
During the years ended December 31, 2017 and 2016, the following transactions not already disclosed in these
financial statements occurred:
(i) On April 7, 2017, Pure Multi-Family completed the closing of a public offering of 10,343,100 Class A Units
on a bought deal basis, at a price of $6.67 (CDN$8.90) per Class A Unit for gross proceeds of $68,938,208
(CDN$92,053,590). Pure Multi-Family issued the Class A Units from treasury.
(ii) On June 30, 2017, Pure Multi-Family completed the closing of a public offering of 10,281,000 Class A
Units on a bought deal basis, at a price of $6.76 (CDN$8.95) per Class A Unit for gross proceeds of
$69,459,954 (CDN$92,014,950). Pure Multi-Family issued the Class A Units from treasury.
(iii) During the year ended December 31, 2017, 210 6.5% convertible debentures were converted at a conversion
price of $5.65 into 37,165 Class A Units. Pure Multi-Family issued the Class A Units from treasury.
(iv) On July 29, 2016, Pure Multi-Family completed the closing of a public offering of 4,884,000 Class A Units
on a bought deal basis, at a price of $5.857 (or CDN$7.64) per Class A Unit for gross proceeds of
$28,603,483 (or CDN$37,313,760). Pure Multi-Family issued the Class A Units from treasury.
(v) During the year ended December 31, 2016, the remaining 2,142,913 Class A Unit purchase warrants (each
a “Warrant”) were exercised for 2,142,913 Class A Units at an exercise price of $5.15 for gross proceeds of
$11,036,002 (year ended December 31, 2015 – $283,250). Pure Multi-Family issued the Class A Units
from treasury.
(vi) During the year ended December 31, 2016, 10 6.5% convertible debentures were converted at a conversion
price of $5.65 into 1,769 Class A Units (year ended December 31, 2015 – $nil). Pure Multi-Family issued
the Class A Units from treasury.
(vii) In September 2017, Pure Multi-Family received approval from the TSX Venture Exchange to commence a
normal course issuer bid (“NCIB”), allowing for the purchase for cancellation of up to 1,000,000 Class A
Units. The NCIB commenced on October 3, 2017 and will expire on October 2, 2018, or such earlier date
as Pure Multi-Family completes its purchases pursuant to the NCIB. Purchases subject to this NCIB will
be carried out pursuant to open market transactions through the facilities of the TSX-V by CIBC on behalf
of Pure Multi-Family in accordance with applicable regulatory requirements. All Class A Units purchased
by Pure Multi-Family under the NCIB will be returned to treasury and cancelled. During the year ended
December 31, 2017, Pure Multi-Family did not purchase and cancel any Class A Units under the NCIB.
85
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
Class A Units outstanding, beginning of year
56,068,506
Class A Units issued, public offering
20,624,100
Class A Units issued, warrants exercised
Class A Units issued, debentures converted
-
37,165
2017
2016
49,039,824
4,884,000
2,142,913
1,769
Class A Units outstanding, end of year
76,729,771
56,068,506
Pure Multi-Family is authorized to issue an unlimited number of Class A Units and Class B Units.
B. Other Equity Items
Balance as at December 31, 2016
Convertible debentures converted, equity
portion
Convertible
Debentures
Equity Component
(note 8)
1,984
$
(19)
Warrants
-
$
$
Balance as at December 31, 2017
$
1,965
$
-
$
Balance as at December 31, 2015
Warrants exercised, net of offering costs
Convertible debentures converted, equity
portion
1,985
-
(1)
Balance as at December 31, 2016
$
1,984
$
680
(680)
-
-
$
Total
1,984
(19)
1,965
2,665
(680)
(1)
1,984
11.
INTEREST EXPENSE
Interest expense consists of the following:
Mortgage interest
Convertible debenture interest
Credit facility interest
Amortization of transaction costs and accretion of
convertible debentures
Mortgage prepayment expense
Year ended
December 31, 2017 December 31, 2016
$
$
19,572
1,477
85
970
-
16,159
1,498
-
968
1,174
$
22,104
$
19,799
86
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
12.
INCOME TAXES
A. Current income taxes
Pure Multi-Family has recorded a provision for Canadian income tax related to Management Co of $43,210
for the year ended December 31, 2017 (2016 - $2,251), which is included in other income (expenses) in the
consolidated statement of comprehensive income.
B. Deferred income taxes
No deferred income taxes have been recorded in respect of Management Co.
13. 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
14. CAPITAL MANAGEMENT
Year ended
$
December 31, 2017
451
(1,492)
12,167
782
380
December 31, 2016
(1,168)
$
(413)
1,503
168
163
$
12,288
$
253
Pure Multi-Family defines capital as the aggregate of partners’ capital, preferred units of subsidiary and long-
term debt. Pure Multi-Family’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-Family’s
capital structure is approved by the board of directors of the Governing GP through its periodic reviews.
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-Family for borrowed money (including the face
amount outstanding under any convertible debentures and any outstanding liabilities of Pure Multi-Family
arising from the issuance of subordinated notes, but excluding any premium in respect of indebtedness assumed
by Pure Multi-Family for which Pure Multi-Family 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-Family 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-Family. Pure Multi-Family’s indebtedness is 53.4%
as at December 31, 2017 (December 31, 2016 – 55.2%). Pure Multi-Family was in compliance with all of its
investment and debt restrictions during the years ended December 31, 2017 and 2016.
There were no changes in Pure Multi-Family’s approach to capital management during the year ended
December 31, 2017.
87
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
The capital structure consisted of the following components as at December 31, 2017 and December 31, 2016:
December 31, 2017
December 31, 2016
Capital
Mortgages payable
Credit facility payable
Convertible debentures
Preferred units of subsidiary
Partners’ capital
$
$
576,253
25,762
21,115
125
518,607
Total capital
$
1,141,862
$
447,827
-
20,793
125
370,162
838,907
15.
FINANCIAL INSTRUMENTS
Fair value of financial instruments
For certain of Pure Multi-Family’s financial instruments, including cash and cash equivalents, amounts
receivable, mortgage reserve fund, and accounts payable and accrued liabilities, the carrying amounts
approximate the fair value due to the short-term nature of the instruments.
The fair value 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 amount and fair value of Pure Multi-Family’s non-current financial
instruments:
December 31, 2017
Carrying
Amount
576,253 $
Fair Value
547,121 $
December 31, 2016
Carrying
Amount
447,827 $
25,762
21,115
125
26,000
23,919
125
-
20,793
125
Fair Value
440,116
-
25,151
125
Mortgages payable
Credit facility
Convertible debentures
Preferred units of subsidiary
$
Financial risk management
The board of directors of the Governing GP (the “Directors”) has the overall responsibility for the establishment
and oversight of Pure Multi-Family’s risk management framework. Pure Multi-Family’s risk management
policies are established to identify and analyze the risks faced by Pure Multi-Family, 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-Family’s activities.
In the normal course of business, Pure Multi-Family, 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-Family if a tenant, customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises principally from Pure Multi-
Family’s receivables from tenants.
88
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
Pure Multi-Family’s exposure to credit risk is influenced mainly by the individual characteristics of each
tenant. Pure Multi-Family 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-Family 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-Family 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-Family, through the US
REIT, tries to secure fixed interest rate mortgages for the majority of its investment properties. As Pure
Multi-Family does not have any mortgages maturing within the next 6 months and all of the mortgages
payable bear interest at fixed rates, with only the outstanding credit facility bearing interest at a variable
rate, Pure Multi-Family does not face significant interest rate risk in the context of its outstanding debt.
C. Liquidity risk
Liquidity risk is the risk that Pure Multi-Family 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-Family’s ability to vary its portfolio promptly in response to changing
economic or investment conditions. If Pure Multi-Family were required to liquidate the investment
properties, the proceeds to Pure Multi-Family might be significantly less than the aggregate carrying value
of such property.
Pure Multi-Family’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-Family 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:
Mortgages payable (principal
and interest)
Credit facility (principal and
interest)
Convertible debentures
(principal and interest)
Preferred units of subsidiary
(principal and interest)
Accounts payable and accrued
liabilities
2018
2019
2020
2021
2022
2023 and
thereafter
$ 25,906
$ 87,208
$ 25,878
$ 62,565
$ 54,102
$ 502,282
946
946
26,868
1,481
1,481
23,891
-
-
-
-
-
-
16
16
16
16
16
140,625
25,498
-
-
-
-
-
Total
$ 53,847
$ 89,651
$ 76,653
$ 62,581
$ 54,118
$ 642,907
D. Currency risk
Pure Multi-Family is exposed to minimal currency risk since only a small portion of the expenses is in
Canadian dollars.
89
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
E. Environmental risk
Pure Multi-Family, through the US REIT, is subject to various federal, state and municipal laws relating to
the environment. On acquisition, Pure Multi-Family conducts environmental inspections of its properties
and appropriate testing by qualified environmental consultants when required to ensure compliance with
all applicable environmental laws.
16. RELATED PARTY TRANSACTIONS
Managing GP
Pure Multi-Family is related to the Managing GP, by virtue of having an officer and director in common
(Stephen Evans).
Pure Multi-Family declared distributions to the Managing GP in the amount of $999,688 during the year ended
December 31, 2017 (year ended December 31, 2016 - $989,687). Included in accounts payable and accrued
liabilities at December 31, 2017 was $nil (December 31, 2016 - $nil) payable to the Managing GP.
Asset Management Agreement
Effective September 1, 2016, Pure Multi-Family terminated its Asset Management Agreement with the
Managing GP, as permitted upon the triggering of the Determination Event. No penalties were incurred upon
termination of the Asset Management Agreement.
Tipton Asset Group, Inc.
Tipton Asset Group, Inc. (“Tipton”) was the property manager for Pure Multi-Family up until September 30,
2017. Pure Multi-Family is related to Tipton by virtue of having an officer and director in common (Bryan
Kerns) with a subsidiary of Pure Multi-Family. Tipton charged property management fees in the amount of
$1,858,703 during the year ended December 31, 2017 (year ended December 31, 2016 $2,301,288). During
the year ended December 31, 2017, Tipton charged due diligence and acquisition analysis fees of $706,741
(year ended December 31, 2016 - $nil), which were capitalized upon the acquisition of the related properties.
Included in accounts payable and accrued liabilities at December 31, 2017 was $nil (December 31, 2016 - $nil)
payable to Tipton.
Compensation
The Directors 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 indirectly reimburses such directors for any out of pocket expenses,
including out of pocket expenses for attending meetings. Pure Multi-Family reimburses the Governing GP for
such amounts. In addition, Pure Multi-Family has obtained insurance coverage for such directors.
Compensation is reviewed on an annual basis, giving consideration to Pure Multi-Family’s growth and the
extent of its portfolio.
As part of the internalization of asset management, as described in Asset Management Agreement, certain key
personnel of the Managing GP became corporate employees of a subsidiary of Pure Multi-Family effective
September 1, 2016.
Key corporate personnel have the authority and responsibility for planning, directing and controlling the
activities of Pure Multi-Family, directly or indirectly. Pure Multi-Family’s key personnel include the Chief
Executive Officer, Chief Financial Officer, Vice Presidents and the Directors. Salaries, bonuses, directors’
fees and other short-term employee benefits and incentives are accrued when earned and are as follows:
90
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
Year ended
December 31, 2017
December 31, 2016
Salaries, directors’ fees, and other short-term benefits
$
1,897
$
505
There was no unit based compensation expense incurred by Pure Multi-Family during the years ended
December 31, 2017 and December 31, 2016.
17. LEASES
Property Lease Revenue
Pure Multi-Family, 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 $49,710,451 as at December 31, 2017 (December 31, 2016 -
$33,231,374).
Operating Lease Commitment
During the year ended December 31, 2017, Pure Multi-Family entered into an operating lease agreement,
expiring in 2025 for the lease of the US REIT corporate office located in Plano, Texas, with total payments of
approximately $1.1 million required over the lease term.
18.
FAIR VALUE MEASUREMENT
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:
December 31, 2017
December 31, 2016
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Investment properties
Mortgages payable
Credit facility
Convertible debentures
Preferred units of subsidiary
$
-
-
-
23,919
-
$
- $ 1,133,501 $
- $
- $ 778,547
547,121
26,000
-
125
-
-
-
-
-
-
25,151
440,116
-
-
-
125
-
-
-
-
There have been no transfers between the levels during the year.
As disclosed above, the fair value methodology for Pure Multi-Family’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.
Investment properties as at December 31, 2017 and December 31, 2016 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.
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, 2017:
91
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
Pure Multi-Family REIT LP
Notes to Consolidated Financial Statements
(tabular amounts expressed in thousands of United States dollars, except units and per unit amounts)
Rate sensitivity
+ 75 basis points
+ 50 basis points
+ 25 basis points
Base rate (5.17%)
- 25 basis points
- 50 basis points
- 75 basis points
OCR Sensitivity
Fair value
Change in fair value
$ 989,527
$ (143,974)
1,033,263
1,081,057
1,133,501
1,191,313
1,255,364
1,326,726
(100,238)
(52,444)
-
57,812
121,863
193,225
19. 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
Diluted net income and comprehensive income
allocated to Class B unitholders (2)
Notes:
Year ended
December 31, 2017
$ 43,196
1,989
45,185
December 31, 2016
$ 48,164
1,980
50,144
43,593
47,714
$ 1,592
$ 2,430
(1) Dilutive interest expense includes the removal of the interest expense related to the dilutive 6.5% convertible
debentures.
(2) Diluted net income and comprehensive income allocated to Class B unitholders for the year ended December 31, 2016
is anti-dilutive and therefore not shown on the consolidated statement of income and comprehensive income.
Weighted average number of Class A units - basic
Dilutive effect of the conversion of convertible
debentures using the treasury stock method (1)
Dilutive effect of the conversion of warrants (2)
Weighted average number of Class A units - dilutive
Notes:
Year ended
December 31, 2017
68,926,987
December 31, 2016
51,553,540
4,031,858
-
72,958,845
4,069,027
116,435
55,739,002
(1) Conversion of 6.5% convertible debentures based on exercise price of $5.65 per Class A Unit.
(2) Conversion of warrants based on exercise price of $5.15 per Class A Unit.
20.
SUBSEQUENT EVENT
A. On February 2, 2018, 10 of the remaining outstanding 22,780 6.5% convertible debentures were
converted into 1,769 Class A Units.
92
PURE MULTI-FAMILY REIT LP ANNUAL REPORT
THIS PAGE IS LEFT INTENTIONALLY BLANK
93
ANNUAL REPORT PURE MULTI-FAMILY REIT LP unitholder information
CORPORATE HEADqUARTERS
Pure Multi-Family REIT LP
925 West Georgia Street, Suite 910
Vancouver, BC, Canada V6C 3L2
t: 604-681-5959
tf: 1-888-681-5959
info@puremultifamily.com
www.puremultifamily.com
TRANSFER AGENT
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, ON M5J 2Y1
t: 514-9827555
tf: 1-800-564-6253
AUDITORS
KPMG LLP Chartered Accountants
PO Box 10426, 777 Dunsmuir Street
Vancouver, BC V7Y 1K3
t: 604-691-3000
CORPORATE COUNSEL
Clark Wilson LLP
885 West Georgia Street, Suite 800
Vancouver BC V6H 3H1
t: 604-891-7767
INvESTOR RELATIONS
Andrew Greig
Vice President, Investor Relations
t: 604-449-5286
tf: 1-888-681-5959
STOCK ExCHANGE LISTING
TSX-V: RUF. U (USD), RUF.UN (CAD)
RUF.DB.U, OTCQX: PMULF
ANNUAL & SPECIAL MEETING OF SHAREHOLDERS
May 24, 2018 - 11:00 am
KPMG, 777 Dunsmuir Street, 11th Floor
Sea to Sky Room
board of Directors
Robert W. King, ICD.D
Chair and Independent Director
(AC, CC, NGC)
Stephen J. Evans
Director & CEO
Fraser R. Berrill, C.Dir, BA, LLB
Independent Director
(AC, CC, NGC)
Maurice (Maish) Kagan *, B.Com, CTA
Independent Director
(AC)
John C. o’neill
Independent Director
(CC, NGC)
James L. Redekop
Independent Director
(CC)
James A. Speakman, ICD.D
Director
(NGC)
Sherry D. Tryssenaar, CPA, CMA
Independent Director
(AC)
Committee composition as at the date of this report.
* Maurice (Maish) Kagan joined January 2018.
AC - Audit Committee
CC - Compensation Committee
NGC - Nomination & Governance Committee
Stoneleigh at Bear Creek, Dallas, Texas
Vistas at Hackberry Creek, Dallas, Texas
Fountainwood Apts, Dallas, Texas
94
PURE MULTI-FAMILY REIT LP ANNUAL REPORT Management Team
2017 Distributions
Stephen J. Evans
Chief Executive Officer
Samantha Adams
Senior Vice President
Scott Shillington
Chief Financial Officer
Andrew Greig
Vice President, Investor Relations
Lee Ann neumann
Executive Vice President, US Operations
Pure Multi-Family intends to make an
annual cash distribution to unitholders of
US$0.375 per unit. Monthly distributions
are paid on or around the 15th day
following the end of each month.
January
February
March
April
May
June
July
August
September
October
November
December
Total
Per Unit (USD)
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.03125
$0.37500
This annual report is printed on paper containing 10-30% recycled content.
Stoneleigh Valley Ranch, Dallas, Texas
Prairie Creek Villas, Dallas, Texas
PURE Estates at TPC, Dallas, Texas
95
ANNUAL REPORT PURE MULTI-FAMILY REIT LP
PURE Farmers Market, Dallas, Texas
PURE MULTI-FAMILY REIT LP
puremultifamily.com
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