August 2022 marks another success month for our rental property operations. We have deposited a total of $41,905 cash distribution to investors, 4.76% over Jan to July average.
This Month’s Operating Highlights
Like mentioned in the mid-year report, our operation team managed to drive to a high tenant occupancy rate across the portfolio in Q3. With 12 out of 13 long-term rental properties now under stable 1-year lease, investors can expect Rental Revenue at or above Estimates.
Looking at Net Operating Income (NOI), which is the result of deducting Operating Expenses from Rental Revenue. Single-Families outperformed Estimates across the board in August except for Austin-S1 where a one-time A/C heating repair cost lowered NOI to below Estimates.
Single-Families Net Operating Income
S2/S3/S4 have been consistently delivering NOI above the Estimates. S5 has finished major maintenance in the first half of 2022, and moved into a stable operating phase. S1 had vacancy in the first half of 2022, but has been fully occupied since late April with stable operation. S6 our newest listing is also performing well.
The nature of Multi-Families makes it harder to complete necessary renovations all upfront before we initially listed them for share purchase, like typically do for Single-Families. As most tenants already occupied the units, we will complete the renovation between tenants. Therefore investors may expect renovation expenses periodically during the initial operating period.
This is why most active maintenance happens with our Multi-Families and driving 3 out of 5 properties August NOI below Estimates.
Multi-Families Net Operating Income
Memphis-M4 is the only long-term rental property with vacancy in August. Tenants (1 unit out of 14 total units) moved out in June. We gave this unit a significant facelift renovation in July and August to prepare it for the next tenants and potentially a rent raise. The project is done as we speak and the team is actively seeking tenants to backfill the unit.
Other major maintenance projects that occurred during this time period are as follows.
- Philadelphia-T2 One-time scheduled maintenance (new tenant moving in).
- Philadelphia-D2 One-time scheduled maintenance (new tenant moving in).
It is worth noting that Seattle-D1 NOI has been above Estimates for a consecutive 3 months since June. A great indicator that our new tenant strategy has been providing value to investors and is expected to deliver stable and above Estimates Cash Distribution in the long run.
Add Seattle-D1 to your portfolio if you haven’t done so.
Philadelphia-T1, our short-term rental property, is doing well in the past 2 months as well. It underwent major renovation in the first quarter and was officially put into operation in the second quarter. In Q2 average NOI was $718.36 and in Q3 first two months the average NOI went up to $1616.51, an 125% increase. We will continue to monitor and report its performance to project its annualized return potential.
Cash Distribution Rule Change Announcement
For the coming quarter, we also plan to update how we treat Property Improvement Expenses (such as changing wood floors or painting exterior walls). This will be reflected in your month to month Cash Distribution.
Property Improvement Expenses
The new rule will even out expenses that are providing overall property improvement and drive healthy investor return to a longer period than on a single month. It is a better accounting practice and a true reflection of such investment (expenses) to the income it generated. We will update with more details as we implement the change.
Financing Cost Details
As we progress to sell more shares of each property, the temporary financing cost each month will reduce to none unless we have a specific leverage strategy for certain properties. As of now, below are the properties in the process of closing the gap.
Property with Financing Cost & Current Shares Sold Progress
Cash Distribution
August Cash Distribution for the property group with no financing cost are all above Estimates, except for Austin-S1 due to the one-time A/C heating repair cost. On the other hand, the property group with initial financing cost are temporarily below Estimates. As we proceed to complete sales of all shares and stabilize property operation, we expect all properties to meet Estimates.
Property Group (No Financing Cost)
Property Group (with Financing Cost)
Operating Forecast
Moving into September, we expect Rental Revenue to be as stable given we do not have any vacancy at this point except for M4. NOI will likely be positive with no major renovation scheduled.
We also carefully reviewed Cash Reserves. Each quarter the team will do a deep dive analysis to make sure the current figures are healthy and planning is on track.
In Closing
Two months into Q3, we have seen significant improvement in driving tenant occupancy. Our operating focus for the coming months is shifting towards optimizing operating expenses and accounting rules that may be reflected in your month to month Cash Distribution. As we add more properties into the Ark7 portfolio, we are constantly improving the efficiency of operation and we intend to share the insights with our investor community regularly.
