/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES./

TORONTO, March 1, 2023 /CNW/ - Starlight U.S. Multi-Family (No. 2) Core Plus Fund (TSXV: SCPT.A) (TSX: SCPT.U) (the "Fund") announced today its results of operations and financial condition for the three months ended December 31, 2022 ("Q4-2022") and year ended December 31, 2022 ("YTD-2022"). Certain comparative figures are included for the three months ended December 31, 2021 ("Q4-2021") and the period from January 8, 2021 (date of formation) to December 31, 2021 ("YTD-2021").

All amounts in this press release are in thousands of United States ("U.S.") dollars except for average monthly rent1 ("AMR") or unless otherwise stated. All references to "C$" are to Canadian dollars. 

"The Fund owns a high-quality, well located portfolio of multi-family communities which has continued to demonstrate strong operating results including normalized same property net operating income growth of 10.9% during the fourth quarter of 2022," commented Evan Kirsh, the Fund's President. "The Fund continues to focus on increasing net operating income at the properties through its active asset management strategy and to navigate the present period of capital markets uncertainty with the goal of maximizing the total return for investors upon the eventual sale of its properties."

Q4-2022 HIGHLIGHTS

  • Q4-2022 revenue from property operations and net operating income ("NOI")1 were $5,146 and $3,174 (Q4-2021 - $3,391 and $2,194), respectively, representing an increase of $1,754 and $980 relative to Q4-2021 primarily as a result of the acquisition of Summermill at Falls River ("Summermill") as well as strong same property revenue growth of 12.3% and strong same property NOI growth of 10.9% after normalizing for certain 2022 property tax adjustments recorded in Q4-2022.
  • Rent growth in the primary markets in which the Fund operates reduced slightly during Q4-2022 primarily due to the return of more seasonal leasing patterns that were more customary prior to the onset of Coronavirus (SARS-COV2) and its variants ("COVID-19") but still continued at levels well above historical averages including trade-out rent growth during Q4 2022 in excess of approximately 5%. Leasing volumes are typically at their lowest levels from October to February and highest from March to September, when higher rental increases can typically be achieved.
  • The Fund completed 26 in-suite value-add upgrades during Q4-2022 generating an average rental premium of $294 and an average return on cost of approximately 20.0%.
  • As at February 28, 2023, the Fund had collected 98.5% of rents for Q4-2022, with further amounts expected to be collected in future periods, demonstrating the Fund's high quality resident base and operating performance.
  • The Fund reported a net loss and comprehensive loss for Q4-2022 of $9,200 (Q4-2021 - net income and comprehensive income of $4,028) primarily resulting from the fair value loss on investment properties reported during Q4-2022 driven by expansion in capitalization rates partially offset by the strong NOI growth.
  • As at December 31, 2022, the Fund's weighted average interest rate was 5.42% with the Fund also having interest rate caps in place which protect the Fund from increases in SOFR (as defined below) above approximately 3.0%.
  • On November 25, 2022, the Fund announced it was pausing monthly distributions for all classes of units, effective with the November 2022 distribution, which would have been payable on December 15, 2022. The Fund continues to navigate this continued period of capital markets uncertainty with the reduction in distributions amounting to approximately $3,300 per annum which is expected to provide the Fund with additional flexibility during this period of capital markets uncertainty.

1 This  metric is a non-IFRS measure. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS (see "non-IFRS financial measures").
2 Full details of the Fund's interest rate caps in place can be found in the Fund's consolidated financial statements for the three months and year ended December 31, 2022 and for the three months ended December 31, 2021 and the period from January 8, 2021 (date of formation) to December 31, 2021 as well as the Fund's Management Discussion & Analysis for Q4-2022, both of which are available at www.sedar.com. 


YTD-2022 HIGHLIGHTS

  • On April 27, 2022, the Fund acquired Summermill, a 320-suite multi-family property located in Raleigh, North Carolina to bring the Fund's total portfolio to 995 multi-family suites. The acquisition was financed through cash on hand, a new first mortgage at Summermill, as well as net proceeds from the refinancing of Hudson at East ("Hudson").
  • Revenue from property operations and NOI were $18,238 and $11,837 (YTD-2021 - $10,104 and $6,538), respectively, representing a $8,133 and $5,299 increase relative to YTD-2021. The significant increases were primarily due to the acquisition of Summermill in Q2-2022, strong same property revenue and NOI growth and the difference in the number of operating days between YTD-2022 and YTD-2021.
  • The Fund achieved same property AMR growth of 10.3%.
  • Net loss and comprehensive loss was $6,214 (YTD-2021 - net income and comprehensive income of $23,770) primarily as a result of the fair value loss on investment properties reported during Q4-2022 driven by expansion in capitalization rates partially offset by the strong NOI growth.

FINANCIAL CONDITION AND OPERATING RESULTS

Highlights of the financial and operating performance of the Fund as at December 31, 2022, for Q4-2022 and YTD-2022, including a comparison to December 31, 2021, Q4-2021 and YTD-2021, as applicable, are provided below:






December 31, 2022

December 31, 2021

Operational Information(1)





Number of properties



3

2

Total suites



995

675

Economic occupancy(2)(3)



94.1 %

93.6 %

Same property AMR (in actual dollars)(4)



$           1,784

$           1,617

Same property AMR per square foot (in actual dollars)(4)



$             1.84

$             1.67

Estimated Gap to Market Versus In-Place Rents



8.0 %

n/a

Selected Financial Information





Gross book value(3)



$       355,500

$       255,200

Indebtedness(3)



$       243,684

$       131,063

Indebtedness to gross book value(3)



68.5 %

51.4 %

Weighted average interest rate - as at period end(5)



5.42 %

2.49 %

Maximum  weighted average interest rate - as at period end (5)



5.42 %

n/a

Weighted average loan term to maturity



3.63 years

4.86 years




Q4-2022

Q4-2021

YTD-2022

YTD-2021 (1)

Summarized Income Statement





Revenue from property operations

$           5,146

$           3,391

$         18,238

$         10,104

Property operating costs

(1,309)

(855)

(4,428)

(2,464)

Property taxes(6)

(663)

(342)

(1,973)

(1,102)

Adjusted income from operations / NOI

$           3,174

$           2,194

$         11,837

$           6,538

Fund and trust expenses

(373)

(305)

(1,351)

(859)

Finance costs (including non-cash items)(7)

(3,187)

(1,567)

(4,484)

(3,533)

Other income and expenses(8)

(8,814)

3,706

(12,216)

21,624

Net income and comprehensive income

$          (9,200)

$           4,028

$          (6,214)

$         23,770

Other Selected Financial Information





   FFO(3)

$          (1,105)

$              348

$              501

$           2,290

   FFO per unit - basic and diluted

$            (0.10)

$             0.03

$             0.05

$             0.21

   AFFO(3)

$             (923)

$           1,017

$              979

$           3,105

   AFFO per unit - basic and diluted

$            (0.08)

$             0.09

$             0.09

$             0.28

   Weighted average interest rate - average during period(9)

5.42 %

2.48 %

4.24 %

2.46 %

   Interest coverage ratio(3)(10)

0.76 x

2.29 x

1.13 x

2.34 x

   Indebtedness coverage ratio(3)(10)

0.76 x

2.29 x

1.13 x

2.34 x

Distributions to unitholders

$              256

$              850

$           2,767

$           2,570

   Weighted average units outstanding (000s) - basic/diluted

10,902

10,902

10,902

10,902

(1)

The Fund commenced operations following the acquisition of Montane Apartments ("Montane") and Hudson on March 31, 2021 and subsequently acquired Summermill on April 27, 2022.

(2)

Economic occupancy for Q4-2022 and Q4-2021.

(3)

This metric is a non-IFRS measure. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS (see "non-IFRS financial measures and reconciliation").

(4)

Same property AMR and same property AMR per square foot as at December 31, 2022 and December 31, 2021 represents the average AMR for Montane and Hudson only given both properties were owned as at both reporting dates. The total portfolio AMR and AMR per square foot including Summermill as at December 31, 2022 is $1,678 and $1.84, respectively.

(5)

Based on interest rate caps in place as at December 31, 2022, which protect the Fund from increases in the Fund's index rates  beyond stipulated levels, the Fund's maximum interest rate was approximately 5.42%. The weighted average interest rate on loans payable is presented as at December 31, 2022 reflecting the prevailing index rate, U.S. 30-day New York Federal Reserve Secured Overnight Financing Rate ("NY SOFR") or one-month term Secured Overnight Financing Rate (together with NY SOFR, "SOFR") as applicable to each loan, as at that date  now reflects the capped rate.

(6)

Property taxes were adjusted to exclude the International Financial Reporting Interpretations Committee 21 – Levies ("IFRIC 21") fair value adjustment and treat property taxes as an expense that is amortized during the fiscal year for the purpose of calculating NOI. These amounts have been reported under fair value adjustment IFRIC 21 under the Fund's consolidated  financial statements for Q4-2022.

(7)

Finance costs include interest expense on loans payable, non-cash amortization of deferred financing costs, as well as fair value changes in derivative financial instruments.

(8)

Includes distributions to unitholders, dividends to preferred shareholders, unrealized foreign exchange gain, realized foreign exchange loss, fair value loss of investment properties, provision for carried interest and deferred income taxes.

(9)

The weighted average interest rate on loans payable presented reflects the average prevailing index rate, NY SOFR or Term SOFR, as applicable to each of the loans payable, throughout each period presented.

(10)

The Fund's interest coverage ratio and indebtedness coverage ratio were each 0.76 x during Q4-2022, with the Fund reporting strong operating results offset by increases in the Fund's interest costs as a result of the Fund utilizing a variable rate debt strategy which allows the Fund to maintain maximum flexibility for the potential sale of the Fund's properties at the end of, or during, the Fund's three-year term. The Fund also has interest rate caps on the Fund's loans payable in place as at December 31, 2022 which protect the Fund from increases in SOFR beyond approximately 3.00%. Given the Fund was also formed as a "closed-end" limited partnership with an initial term of three years, a  targeted yield of 4.0% and a pre-tax targeted total annual return of 11% across all classes of units of the Fund, the Fund continues to monitor the Fund's interest and indebtedness coverage ratio's with the goal of maximizing the total return for investors during the Fund's term.


NON-IFRS FINANCIAL MEASURES AND RECONCILIATIONS

The Fund's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). Certain terms that may be used in this press release including adjusted funds from operations ("AFFO"), AMR, economic occupancy, estimated gap to market versus in-place rents, funds from operations ("FFO"), gross book value, indebtedness, indebtedness coverage ratio, indebtedness to gross book value, interest coverage ratio, same property NOI and NOI (collectively, the "Non-IFRS Measures") as well as other measures discussed elsewhere in this press release, do not have a standardized definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. The Fund uses these measures to better assess the Fund's underlying performance and financial position and provides these additional measures so that investors may do the same. Further details on Non-IFRS Measures are set out in the Fund's MD&A in the "Non-IFRS Financial Measures" section for Q4-2022 and are available on the Fund's profile on SEDAR at www.sedar.com.

A reconciliation of the Fund's interest coverage ratio and indebtedness coverage ratio are provided below:

Interest and indebtedness coverage ratio

Q4-2022

Q4-2021

YTD-2022

YTD-2021 (1)

Net (loss) income and comprehensive (loss) income

$            (9,200)

$             4,028

$            (6,214)

$           23,770

    (Deduct) / Add: non-cash or one-time items including distributions(2)

8,349

(2,964)

7,449

(20,519)

Adjusted net (loss) income and comprehensive income

$              (851)

$             1,064

$             1,235

$             3,251

Interest coverage ratio(3)

0.76x

2.29x

1.13x

2.34x

Indebtedness coverage ratio(4)

0.76x

2.29x

1.13x

2.34x

(1)

Figures represent 266 days of operating activity in YTD-2021.

(2)

Comprised of unrealized foreign exchange gain, deferred income taxes, amortization of financing costs, fair value adjustment on derivative instruments, fair value adjustment on investment properties, and provision for carried interest.

(3)

Interest coverage ratio is calculated as adjusted net (loss) income and comprehensive (loss) income plus interest expense divided by interest expense.

(4)

Indebtedness coverage ratio is calculated as adjusted net (loss) income and comprehensive (loss) income plus interest expense divided by interest expense and mandatory principal payments on the Fund's loans payable.








The Fund's interest coverage ratio and indebtedness coverage ratio were each 0.76x during Q4-2022, with the Fund reporting strong operating results offset by increases in the Fund's interest costs as a result of the Fund utilizing a variable rate debt strategy which allows the Fund to maintain maximum flexibility for the potential sale of the Fund's properties at the end of, or during, the Fund's three-year term. Although the interest coverage and indebtedness coverage ratio's have been negatively impacted by the increases in SOFR, NOI growth and operating results for the Fund's properties have remained strong.

During Q4-2022, the Fund covered any operating shortfall, including any distributions paid, through cash on hand. The Fund reported strong operating results offset by increases in the Fund's interest costs as a result of the Fund utilizing a variable rate debt strategy which allows the Fund to maintain maximum flexibility for the potential sale of the Fund's properties at the end of, or during, the Fund's three-year term. The Fund also utilizes interest rate caps and swaps to limit the potential impact on the Fund's financial performance from any increases in interest rates. Based on interest rate caps in place as at December 31, 2022, which protect the Fund from increases in SOFR beyond stipulated levels, the Fund's maximum interest rate was approximately 5.42%. The interest rate caps expire in late 2023 and 2024.

CASH PROVIDED BY OPERATING ACTIVITIES RECONCILIATION TO FFO and AFFO

The Fund was formed as a "closed-end" limited partnership with an initial term of three years, a targeted yield of 4.0% and a pre-tax targeted total annual return of 11% across all classes of units of the Fund. For Q4-2022, basic and diluted AFFO and AFFO per Unit were $(923) and $(0.08), respectively (Q4-2021 - $1,017 and $0.09), representing a decrease in AFFO of $1,940, primarily as a result of increases in the Fund's interest costs driven by increases in SOFR, partially offset by NOI growth including strong same property NOI growth and the acquisition of Summermill. The Fund covered any shortfall between cash used by operating activities, including interest costs and distributions through either cash from operating activities during such applicable periods or cash on hand.

A reconciliation of the Fund's cash provided by operating activities determined in accordance with IFRS to FFO and AFFO for Q4-2022, YTD-2022, Q4-2021 and YTD-2021 are provided below:



Q4-2022

Q4-2021

YTD-2022

YTD-2021

Cash provided by operating activities

$             2,831

$             2,531

$           10,129

$             6,276

Less: interest costs

(3,602)

(825)

(9,168)

(2,424)

Cash provided by operating activities, including interest costs(1)

$               (771)

$             1,706

$                961

$             3,852

Add / (Deduct):





Change in non-cash operating working capital

817

36

75

(978)

Change in restricted cash

(894)

(675)

215

384

Amortization of financing costs

(257)

(103)

(750)

(351)

Loss on early extinguishment of debt

—

(617)

—

(617)

FFO

$            (1,105)

$                347

$                501

$             2,290

Add / (Deduct):





Amortization of financing costs

257

103

750

351

Loss on early extinguishment of debt

—

617

—

617

Sustaining capital expenditures and suite renovation reserves

(75)

(51)

(272)

(153)

AFFO

$               (923)

$             1,016

$                979

$             3,105

(1)

This metric is a non-IFRS measure. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS (see "non-IFRS financial measures").


FUTURE OUTLOOK

Since early 2022, concerns over elevated levels of inflation have resulted in a significant increase in interest rates with the U.S. Federal Reserve raising the Federal Funds Rate by approximately 450 basis points. Interest rate increases typically lead to increases in borrowing costs for the Fund, reducing cash flow, given the Fund employs a variable rate debt strategy due to the Fund's three-year term in order to provide maximum flexibility upon the eventual sale of the Fund's properties during or at the end of the Fund's term. Historically, investments in multi-family properties have provided an effective hedge against inflation given the short-term nature of the lease term which was reflected in the rent growth achieved at the Fund's properties during Q4-2022. Furthermore, the Fund does have certain interest rate caps in place which protect the Fund from increases in interest rates beyond stipulated levels and for stipulated terms as described in full detail in the Fund's consolidated financial statements for the year ended December 31, 2022 and for the period from January 8, 2021 (date of formation) to December 31, 2021 which is available at www.sedar.com. The Fund also continues to closely monitor the U.S. employment and inflation data as well as the U.S. Federal Reserve's monetary policy decisions in relation to future interest rates and the resulting impact these may have on the Fund's financial performance in future periods.

The impact of rising interest rates and higher levels of inflation have also significantly disrupted active and new construction of comparable product in the primary markets in which the Fund operates which may create a temporary imbalance in supply of comparable, multi-suite residential properties in future periods. This imbalance, alongside the continued economic strength and solid fundamentals may be supportive of favourable supply and demand conditions for the Fund's properties in future periods and could result in future increases in occupancy and rent growth. The Fund believes it is well positioned to take advantage of these conditions should they transpire given the quality of the Fund's properties and the benefit of having a resident pool employed across a diverse job base.

The Fund continues to closely monitor the financial impact of elevated interest rates and higher levels of inflation on the Fund's liquidity and financial performance.

Further disclosure surrounding the Future Outlook is included in the Fund's management's discussion and analysis in the "COVID-19" and "Future Outlook" sections for Q4-2022 under the Fund's profile, which is available on www.sedar.com.

FORWARD-LOOKING STATEMENTS 

Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws and which reflect the Fund's current expectations regarding future events, including the overall financial performance of the Fund and its properties, including the impact of inflation; interest rates; any resurgence in COVID-19; and the impact of any changes in migration or other population growth patterns that may be caused by the lagging effects of COVID-19 including return to work policies at various employers may have on the business and operations of the Fund.

Forward-looking information is provided for the purposes of assisting the reader in understanding the Fund's financial performance, financial position and cash flows as at and for the periods ended on certain dates and to present 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 information may relate to future results, the impact of inflation levels and interest rates, the ability of the Fund to make and the resumption of future distributions, the impact of COVID-19 on the Fund's properties as well as the impact of any resurgence in COVID-19 on the markets in which the Fund operates, the trading price of the Fund's TSX Venture Exchange listed units which includes class A units and U units of the Fund ("Listed Units") and the value of the Fund's  unlisted units, which include all Units other than the Listed units, acquisitions, financing, performance, achievements, events, prospects or opportunities for the Fund or the real estate industry and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, occupancy levels, AMR, taxes, and plans and objectives of or involving the Fund. Particularly, matters described in "COVID-19" and "Future Outlook" are forward-looking information. In some cases, forward-looking information can be identified by terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "seek", "aim", "estimate", "target", "goal", "project", "predict", "forecast", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts.

Forward-looking statements involve known and unknown risks and uncertainties, which may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities may not be achieved. Those risks and uncertainties include: the extent and sustainability of potential higher levels of inflation and the potential impact on the Fund's operating costs; the pace at which and degree of any changes in interest rates that impact the Fund's weighted average interest rate may occur; the ability of the Fund to make and the resumption of future distributions; the impact of COVID-19 on the Fund's properties as well as the impact of COVID-19 on the markets in which the Fund operates; the trading price of the Listed Units; changes in government legislation or tax laws which would impact any potential income taxes or other taxes rendered or payable with respect to the Fund's properties or the Fund's legal entities; the impact of rising interest costs, high inflation and supply chain issues have on new supply of multi-family apartments; the extent to which favorable operating conditions achieved during historical periods may continue in future periods; the applicability of any government regulation concerning the Fund's residents or rents as a result of COVID-19 or otherwise; and the availability of debt financing as loans payable become due during the Fund's term. A variety of factors, many of which are beyond the Fund's control, affect the operations, performance and results of the Fund and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results.

Information contained in forward-looking information is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the impact of inflation and interest rates on the Fund's operating costs; the impact of interest rate increases and market expectations for future interest rates on the Fund's financial performance; the availability of debt financing and as loans payable become due during the Fund's term; the impact of any resurgence in COVID-19 on the Fund's properties as well as the impact this may have on the markets in which the Fund operates; the trading price of the Listed Units; the applicability of any government regulation concerning the Fund's residents or rents as a result of COVID-19 or otherwise; the realization of property value appreciation and timing thereof; the inventory of residential real estate properties (including single-family rental homes); the availability of residential properties for potential future acquisition, if any, and the price at which such properties may be acquired; the ability of the Fund to benefit from any value add program the Fund conducts at certain properties; the price at which the Fund's properties may be disposed and the timing thereof; closing and other transaction costs in connection with the acquisition and disposition of the Fund's properties; the extent of competition for residential properties; the impact of interest costs, high inflation and supply chain issues have on new supply of multi-family apartments; the extent to which favorable operating conditions achieved during historical periods may continue in future periods; the growth in NOI generated and from its value-add initiatives; the population of residential real estate market participants; assumptions about the markets in which the Fund operates; expenditures and fees in connection with the maintenance, operation and administration of the Fund's properties; the ability of the ability of Starlight Investments US AM Group LP or its affiliates (the "Manager") to manage and operate the Fund's properties or achieve similar returns to previous investment funds managed by the Manager; the global and North American economic environment; foreign currency exchange rates; the ability of the Fund to realize the estimated gap in market versus in-place rents through future rental rate increases; and governmental regulations or tax laws. Given this  period of uncertainty, there can be no assurance regarding: (a) the impact of any resurgence in COVID-19 on the Fund's business, operations and performance or the volatility of the Units; (b) the Fund's ability to mitigate such impacts; (c) credit, market, operational, and liquidity risks generally; (d) that the Manager or any of its affiliates, will continue its involvement as asset manager of the Fund in accordance with its current asset management agreement; and (e) other risks inherent to the Fund's business and/or factors beyond its control which could have a material adverse effect on the Fund.

The forward-looking information included in this press release relate only to events or information as of the date on which the statements are made in this press release. Except as specifically required by applicable Canadian securities law, the Fund undertakes no obligation to update or revise publicly any forward-looking information, whether because of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

ABOUT STARLIGHT U.S. MULTI-FAMILY (NO. 2) CORE PLUS FUND

The Fund is a limited partnership formed under the Limited Partnerships Act (Ontario) for the primary purpose of indirectly acquiring, owning and operating a portfolio of value-add, income producing rental properties in the U.S. multi-family real estate market. The Fund currently owns interests in three properties, consisting of 995 suites with an average year of construction in 2013.

For the Fund's complete consolidated financial statements and MD&A for the year ended December 31, 2022 and any other information related to the Fund, please visit www.sedar.com. Further details regarding the Fund's unit performance and distributions, market conditions where the Fund's properties are located, performance by the Fund's properties and a capital investment update are also available in the Fund's March 2023 Newsletter which is available on the Fund's profile at www.starlightinvest.com.

Please visit us at www.starlightinvest.com and connect with us on LinkedIn at www.linkedin.com/company/starlight-investments-ltd- 

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. 

SOURCE Starlight U.S. Multi-Family (No. 2) Core Plus Fund

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