STARLIGHT U.S. RESIDENTIAL FUND /NOT FOR DISTRIBUTION TO
All amounts in this press release are in thousands of
"The Fund owns a high-quality, well located portfolio of multi-family communities which has continued to demonstrate strong operating results including an increase in same property average monthly rents of 4.3% from Q2-2022 to Q2-2023," commented
Q2-2023 HIGHLIGHTS
- Q2-2023 total portfolio revenue and net operating income ("NOI")1 were
$9,953 and$6,072 (Q2-2022 -$8,212 and$5,067 ), respectively, with the increases resulting primarily from the acquisition of The Ventura and Eight at East ("Primary Variance Drivers"), as well as same property revenue and NOI1 growth of 4.5% and 2.1%, respectively, from Q2-2022 to Q2-2023. - The Fund achieved a 4.3% increase in same property AMR from Q2-2022 to Q2-2023 and reported an estimated gap to market versus in-place rents1 of 8.0% as at the end of Q2-2023, providing further opportunity for rental increases in future periods.
- The Fund completed 47 in-suite value-add upgrades during Q2-2023, which generated an average rental premium of
$150 and an average return on cost of approximately 26.4%. - As at
August 8, 2023 , the Fund had collected approximately 97.5% of rents during Q2-2023, 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 Q2-2023 of
$33,682 (Q2-2022 - net income and comprehensive income of$1,692 ), primarily resulting from the fair value loss on investment properties reported in Q2-2023. - On
May 23, 2023 , the Fund entered into a$25,000 credit facility which bears interest only ("IO") payments until maturity inMay 2024 ("Fund Credit Facility"). At inception of the Fund Credit Facility, the Fund drew$20,000 and used these amounts to repay a total of$18,000 of the Fund's loans payable. The Fund may draw up to an additional$5,000 on the Fund Credit Facility to provide additional liquidity if required by the Fund. - During Q2-2023, the Fund disposed of 58 of its 98 single-family homes, which are non-core to the Fund's overall portfolio and strategy, for net proceeds of
$14,313 which was used to repay the Fund's single-family credit facility in full. The Fund intends to sell the remaining 40 single-family homes throughout the remainder of 2023 to further enhance the Fund's liquidity position, including through repayments on the Fund Credit Facility. - Subsequent to Q2-2023, the Fund amended the existing Eight at East loan payable to a fixed rate loan bearing IO payments at 5.75% from the date of the amendment to the initial maturity date of
May 7, 2025 . As part of such amendment, the Fund discharged its obligation to purchase a replacement interest rate cap inJanuary 2024 , which is expected to allow the Fund to retain substantial liquidity that otherwise would have been utilized for the purchase of such replacement interest rate cap. The Fund has interest rate caps, swaps or fixed rate debt in-place for 100% of its mortgages on the Fund's properties.
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"). |
YTD-2023 HIGHLIGHTS
- YTD-2023 total portfolio revenue and NOI were
$19,869 and$11,976 (YTD-2022 -$14,788 and$9,174 ), respectively, with the increases resulting primarily from the Primary Variance Drivers as well as same property revenue and NOI growth of of 4.8% and 0.4% from YTD-2022 to YTD-2023. - The Fund completed 100 in-suite value-add upgrades at its multi-family properties during YTD-2023, which generated an average rental premium of
$160 and an average return on cost of approximately 24.2%. - The Fund reported a net loss and comprehensive loss attributable to unitholders for YTD-2023 of
$38,144 (YTD-2022 - net income and comprehensive income of$8,608 ), primarily resulting from the fair value loss on investment properties. - On
January 25, 2023 , the Fund entered into an interest rate swap relating to theIndigo Apartments property loan payable at a swap rate of 3.75%, fixing the all-in interest rate at 5.70% until maturity.
FINANCIAL CONDITION AND OPERATING RESULTS
Highlights of the financial and operating performance of the Fund as at
Key Multi-Family Operational Information | |||||
Number of multi-family properties owned | 6 | 6 | |||
Total multi-family suites | 1,973 | 1,973 | |||
Economic occupancy(1)(2) | 91.2 % | 93.2 % | |||
AMR (in actual dollars) | $ 1,623 | $ 1,623 | |||
AMR per square foot (in actual dollars) | $ 1.71 | $ 1.70 | |||
Estimated gap to market versus in-place rents | 8.0 % | 6.0 % | |||
Number of | 40 | 98 | |||
Selected Financial Information | |||||
Gross book value(2) | $ 626,138 | $ 672,025 | |||
Indebtedness(2) | $ 458,917 | $ 469,479 | |||
Indebtedness to gross book value(2) | 73.3 % | 69.9 % | |||
Weighted average interest rate - as at period end(3) | 5.74 % | 5.68 % | |||
Weighted average loan term to maturity(3) | 1.33 years | 1.78 years | |||
Q2-2023 | Q2-2022 | YTD-2023 | YTD-2022 | ||
Summarized Income Statement (Excluding Non-Controlling Interest)(4) | |||||
Revenue from property operations | $ 9,953 | $ 8,212 | $ 19,869 | $ 14,788 | |
Property operating costs | $ (2,554) | $ (1,958) | $ (5,222) | $ (3,482) | |
Property taxes(5) | $ (1,327) | $ (1,187) | $ (2,671) | $ (2,132) | |
Adjusted income from operations / NOI | $ 6,072 | $ 5,067 | $ 11,976 | $ 9,174 | |
Fund and trust expenses | $ (1,092) | $ (612) | $ (1,824) | $ (1,155) | |
Finance costs(6) | $ (6,533) | $ (3,630) | $ (15,308) | $ (4,635) | |
Other income and expenses(7) | $ (32,129) | $ (2,517) | $ (32,988) | $ 5,224 | |
Net (loss) income and comprehensive (loss) income - attributable to Unitholders(4) | $ (33,682) | $ (1,692) | $ (38,144) | $ 8,608 | |
Other Selected Financial Information | |||||
FFO(2) | $ (2,078) | $ 267 | $ (3,676) | $ 2,346 | |
FFO per unit - basic and diluted | $ (0.07) | $ 0.01 | $ (0.12) | $ 0.07 | |
AFFO(2) | $ (1,474) | $ 1,435 | $ (2,497) | $ 3,934 | |
AFFO per unit - basic and diluted | $ (0.05) | $ 0.05 | $ (0.08) | $ 0.12 | |
Weighted average interest rate - average during period(3) | 5.42 % | 3.24 % | 5.32 % | 2.75 % | |
Interest and indebtedness coverage ratio(2)(8) | 0.74 x | 1.44 x | 0.79 x | 1.88 x | |
Distributions to unitholders | $ — | $ 2,438 | $ — | $ 4,900 | |
Weighted average units outstanding (000s) - basic/diluted | 31,820 | 31,820 | 31,820 | 31,820 | |
(1) | Economic occupancy for Q2-2023 and Q4-2022. As at | ||||
(2) | 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 reconciliations"). | ||||
(3) | The weighted average interest rate on loans payable is presented as at | ||||
(4) | The Fund acquired a 90% interest in The Ventura on | ||||
(5) | Excludes the International Financial Reporting Interpretations Committee 21 - Levies fair value adjustment and treats property taxes as an expense that is amortized during the fiscal year for the purpose of calculating NOI. | ||||
(6) | Finance costs include interest expense on loans payable, non-cash amortization of deferred financing costs and fair value changes in derivative financial instruments. | ||||
(7) | Includes distributions to unitholders, dividends to preferred shareholders, unrealized foreign exchange gain (loss), realized foreign exchange gain, fair value adjustment of investment properties, provision for carried interest and deferred income taxes. The Fund has paused monthly distributions effective with the | ||||
(8) | The Fund's interest and indebtedness coverage ratios were 0.74x during Q2-2023, with the Fund reporting strong operating results offset by increases in the Fund's interest costs as a result of the Fund primarily 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 Term. The Fund also had interest rate caps, swaps or fixed rate debt in place as at | ||||
NON-IFRS FINANCIAL MEASURES AND RECONCILIATIONS
The Fund's condensed consolidated interim 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, adjusted net income and comprehensive income, cash provided by operating activities including interest costs, 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 management's discussion and analysis ("MD&A") in the "Non-IFRS Financial Measures" section for Q2-2023 available on the Fund's profile on SEDAR+ at www.sedarplus.ca.
A reconciliation of the Fund's interest coverage ratio and indebtedness coverage ratio are provided below:
Interest and indebtedness coverage ratio | Q2-2023 | Q2-2022 | YTD-2023 | YTD-2022 | |
Net (loss) income and comprehensive (loss) income | $ (33,682) | $ (1,692) | $ (38,144) | $ 8,608 | |
(Deduct) / Add: non-cash or one-time items including distributions(1) | 31,935 | 3,052 | 35,476 | (4,896) | |
Adjusted net (loss) income and comprehensive (loss) income(2) | $ (1,747) | $ 1,360 | $ (2,668) | $ 3,712 | |
Interest coverage ratio(3) | 0.74x | 1.44x | 0.79x | 1.88x | |
Indebtedness coverage ratio(4) | 0.74x | 1.44x | 0.79x | 1.88x | |
(1) | Non-cash or one-time items consist of deferred taxes, amortization of financing costs and loan premiums, fair value adjustments on derivative instruments, provisions for carried interest, loss on early extinguishment of debt and unrealized foreign exchange losses. | ||||
(2) | This metric is a non-IFRS measure. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS (see "non-IFRS financial measures"). | ||||
(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 0.74x during Q2-2023. The decline in both ratios during Q2-2023, relative to Q2-2022, was primarily due to increases in SOFR, partially offset by NOI growth due to the Primary Variance Drivers and same property NOI growth. Although the interest coverage and indebtedness coverage ratios have been negatively impacted by the increases in SOFR, operating results for the Fund's properties have remained strong. During Q2-2023, the Fund covered any operating shortfall through cash on hand, including any proceeds from financing activities as applicable.
The Fund also utilizes interest rate caps, swaps or fixed rate debt on 100% of its mortgages at the Fund's properties to limit the potential impact on the Fund's financial performance from any increases in interest rates. As a result of such interest rate caps, swaps, or fixed rate debt in place as at
CASH PROVIDED BY OPERATING ACTIVITIES RECONCILIATION TO FFO and AFFO
The Fund was formed as a "closed-end" trust 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 Q2-2023, basic and diluted AFFO and AFFO per Unit were
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"). |
A reconciliation of the Fund's cash provided by operating activities determined in accordance with IFRS to FFO and AFFO for Q2-2023, Q2-2022, YTD-2023 and YTD-2022 is provided below:
Q2-2023 | Q2-2022 | YTD-2023 | YTD-2022 | ||
Cash provided by operating activities | $ 4,753 | $ 8,268 | $ 10,272 | $ 8,294 | |
Less: interest costs | (6,773) | (3,108) | (12,926) | (4,280) | |
Cash (used in) provided by operating activities - including interest costs | $ (2,020) | $ 5,160 | $ (2,654) | $ 4,014 | |
Add / (Deduct): | |||||
Change in non-cash operating working capital | (1,315) | (5,246) | (1,314) | (1,997) | |
Loss on early extinguishment of debt | — | (618) | — | (618) | |
Transaction costs | 374 | — | 374 | — | |
Change in restricted cash | 1,111 | 1,455 | 674 | 1,712 | |
Net loss attributable to non-controlling interests | 430 | 5 | 531 | 5 | |
Amortization of financing costs | (658) | (489) | (1,287) | (770) | |
FFO | $ (2,078) | $ 267 | $ (3,676) | $ 2,346 | |
Add / (Deduct): | |||||
Amortization of financing costs | 713 | 483 | 1,398 | 764 | |
Loss on early extinguishment of debt | — | 618 | — | 618 | |
Vacancy costs associated with the Fund's properties upgrade program | 40 | 221 | 80 | 474 | |
Sustaining capital expenditures and suite or home renovation reserves | (149) | (154) | (299) | (268) | |
AFFO | $ (1,474) | $ 1,435 | $ (2,497) | $ 3,934 | |
FUTURE OUTLOOK
Since early 2022, concerns over elevated levels of inflation have resulted in a significant increase in interest rates with the
The impact of rising interest rates and higher levels of inflation have also significantly disrupted active and new construction of comparable communities in the primary markets in which the Fund operates which may create a temporary imbalance in supply of multi-suite residential properties and single-family rental homes 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 MD&A in the "Future Outlook" section for Q2-2023 under the Fund's profile, which is available on SEDAR+ at www.sedarplus.ca.
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, as well as the impact of elevated levels of inflation and interest rates.
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 trading price of the Fund's
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 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 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; 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 as loans payable become due during the Fund's term; the trading price of the Listed Units; the applicability of any government regulation concerning the Fund's residents or rents; 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 of 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 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
The forward-looking information included in this press release relates 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
The Fund is a "closed-end" fund formed under and governed by the laws of the Province of
For the Fund's complete condensed consolidated interim financial statements and MD&A for the three and six months ended
Please visit us at www.starlightinvest.com and connect with us on LinkedIn at www.linkedin.com/company/starlight-investments-ltd-
Neither the
SOURCE
© Canada Newswire, source
