/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, Aug. 9, 2022
/CNW/ - Starlight U.S. Multi-Family (No. 2) Core Plus Fund (TSXV:
SCPT.A) (TSXV: SCPT.U) (the "Fund") announced today its results of
operations and financial condition for the three months ended
June 30, 2022 ("Q2-2022") and six
months ended June 30, 2022
("YTD-2022"). Certain comparative figures are included for the
three months ended June 30, 2021
("Q2-2021") and the period from January 8,
2021 (date of formation) to June 30,
2021 ("YTD-2021").
All amounts in this press release are in thousands of
United States ("U.S.") dollars
except for average monthly rent ("AMR") or unless otherwise stated.
All references to "C$" are to Canadian dollars.
"We are pleased to announce another quarter of strong operating
results with the Fund achieving same property NOI growth of 14.5%,"
commented Evan Kirsh, the Fund's
President. "The Fund also reported annualized rent growth of 14.7%
during Q2-2022, reflecting the Fund's ability to take advantage of
favorable operating conditions."
Q2-2022 HIGHLIGHTS
- On April 27, 2022, the Fund
acquired Summermill at Falls River ("Summermill"), a 320-suite
multi-family property located in Raleigh,
North Carolina to bring the Fund's portfolio to 995
multi-family suites. The acquisition was financed through cash on
hand, new first mortgage at Summermill and net proceeds from the
refinancing of Hudson at East
("Hudson").
- Q2-2022 revenue from property operations and net operating
income ("NOI") were $4,565 and
$3,029 (Q2-2021 - $3,248 and $2,078),
respectively, representing an increase of $1,317 and $952
relative to Q2-2021 primarily as a result of the acquisition of
Summermil as well as strong same property revenue growth of 11.1%
and strong same property NOI growth of 14.5%.
- Significant increases in rent growth continued during Q2-2022
with the Fund achieving annualized rent growth for the quarter of
14.7% and year over year rent growth of 12.0%. These increases were
driven by continued growth in demand for multi-family suites due to
the economic strength shown in the U.S. and the primary markets
("Primary Markets") in which the Fund operates. In addition, the
Fund reported an estimated gap in market versus in-place rents of
21.0% as at June 30, 2022 providing
further opportunity for rental increases in future periods.
- As at August 8, 2022, the Fund
had collected 99.0% of rents for Q2-2022, with further amounts
expected to be collected in future periods, demonstrating the
Fund's strong resident base and operating performance.
- Adjusted funds from operations ("AFFO") for Q2-2022 was
$840 or $113 ahead of Q2-2021 and net income for Q2-2022
was $180 (Q2-2021 - loss of
$617) representing a $797 increase relative to Q2-2021.
- On May 12, 2022, the Fund entered
into a new variable rate collar contract which replaced the
previously existing contract to protect against the potential
impact of any weakening of the U.S. dollar on the amount required
to pay the Fund's monthly Canadian dollar distributions. This new
contract allows the Fund to establish a guaranteed monthly exchange
rate between C$1.2585 and
C$1.3400 for the conversion of U.S.
dollar funds to Canadian dollar funds amounting to C$312 per month from June
10, 2022 to November 10,
2022.
YTD-2022 Highlights
- Recorded a fair value gain on the properties owned by the Fund
("Properties") of $12,648,
contributing to the cumulative $62,092 or 21.8% increase over the aggregate
purchase price since the Properties were acquired. The fair value
gain during YTD-2022 was driven primarily by NOI growth.
- Revenue from property operations and NOI were $8,018 and $5,325
(YTD-2021 - $3,284 and $2,482), respectively, representing a
$4,735 and $3,226 increase relative to YTD-2021. The
significant increases are primarily due to the acquisition of
Summermill in Q2-2022 and the difference in the number of operating
days between YTD-2022 and YTD-2021.
- AFFO was $1,999, $1,036 ahead of Q2-2021 primarily due to the
acquisition of Summermill as well as increases in NOI at Montane
and Hudson partially offset by
increases in interest expenses.
- Net income for YTD-2022 was $9,000 (YTD-2021 - loss of $608) representing a $9,608 increase relative to YTD-2021, primarily
due to the acquisition of Summermill in Q2-2022, the difference in
the number of operating days between YTD-2022 and YTD-2021, as well
as the fair value gain on the Properties described above.
FUTURE OUTLOOK AND COVID-19 IMPACT
On March 11, 2020, the World
Health Organization characterized the outbreak of COVID-19 as a
global pandemic. COVID-19 vaccination programs continue across the
U.S. to varying degrees in different states and jurisdictions with
the immunization efforts widely considered to have been successful
to date relative to other countries globally and the approval of a
third and fourth COVID-19 dose by the U.S. Food and Drug
Administration to help further advance immunization efforts in
preventing the spread of COVID-19. However, there is a risk that
delays in the timely administration of vaccination programs,
changing strains of the virus, including the occurrence of new
variants of COVID-19, or reluctance to receive vaccinations could
prolong the impacts of COVID-19 and have the potential to cause
further adverse economic conditions. According to the U.S.
Department of Labor, unemployment rates for June 2022 remained consistent with March 2022 at 3.6% and down from a peak of
approximately 15% in April 2020. The
employment gains during that period were broadly diversified across
many industries and driven by the continued economic reopening
linked to the successful vaccination program across the U.S. The
sustained rollout of the vaccination program is expected to
continue to improve economic growth and employment throughout the
U.S., although there can be no certainty with respect to the timing
of these improvements.
Since early 2022, concerns over rising inflation have resulted
in a significant increase in interest rates with the U.S. Federal
Reserve raising the overnight rate by 225 basis points, with
further increases anticipated for the duration of 2022. Interest
rate increases typically lead to increases in borrowing costs for
the Fund, reducing cashflow, given that 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
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 Q2-2022. Given the Fund was formed as a
"closed-end" fund with an initial term of three years, it is the
Fund's intention to maintain its targeted yield of 4.0% across all
classes of Units despite potential periods of increasing interest
rates. 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 condensed consolidated interim financial
statements for the three and six months ended June 30, 2022
and for the three months ended June 30,
2021 and the period from January 8,
2021 (date of formation) to June 30,
2021 (unaudited) that is available at www.sedar.com.
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 Q2-2022 under the Fund's profile,
which is available on www.sedar.com.
FINANCIAL CONDITION AND OPERATING RESULTS
Highlights of the financial and operating performance of the
Fund as at June 30, 2022, for Q2-2022
and YTD-2022, including a comparison to December 31, 2021, for Q1-2021 and YTD-2021 are
provided below:
|
|
|
June 30,
2022
|
December 31,
2021
|
Operational
Information (1)
|
|
|
|
|
Number of
properties
|
|
|
3
|
2
|
Total suites
|
|
|
995
|
675
|
Economic occupancy
(2)
|
|
|
94.5 %
|
93.6 %
|
Same property AMR (in
actual dollars) (3)
|
|
|
$
1,713
|
$
1,617
|
Same property AMR per
square foot (in actual dollars)
|
|
|
$
1.76
|
$
1.67
|
Estimated gap in market
versus in-place rents
|
|
|
21.1 %
|
n/a
|
Summary of Financial
Information
|
|
|
|
|
Gross book
value
|
|
|
$
375,895
|
$
255,200
|
Indebtedness
|
|
|
$
240,500
|
$
131,063
|
Indebtedness to gross
book value
|
|
|
64.0 %
|
51.4 %
|
Weighted average
interest rate - as at period end (4)
|
|
|
4.28 %
|
2.49 %
|
Weighted average loan
term to maturity
|
|
|
4.15 years
|
4.86 years
|
|
Q2-2022
|
Q2-2021
|
YTD-2022
|
YTD-2021
(1)
|
Summarized Income
Statement
|
|
|
|
|
Revenue from property
operations
|
$
4,565
|
$
3,248
|
$
8,018
|
$
3,284
|
Property operating
costs
|
(1,087)
|
(792)
|
(1,878)
|
(802)
|
Property taxes
(5)
|
(449)
|
(378)
|
(816)
|
(382)
|
Adjusted income from
operations / NOI
|
$
3,029
|
$
2,078
|
$
5,325
|
$
2,100
|
Fund and trust
expenses
|
(326)
|
(280)
|
(590)
|
(283)
|
Finance costs
(including non-cash items) (6)
|
(1,332)
|
(1,025)
|
(777)
|
(1,036)
|
Other income and
expenses (7)
|
(1,191)
|
(1,390)
|
5,042
|
(1,389)
|
Net income and
comprehensive income
|
$
180
|
$
(617)
|
$
9,000
|
$
(608)
|
Other Selected
Financial Information
|
|
|
|
|
Funds from operations
("FFO")
|
$
742
|
$
881
|
$
1,875
|
$
889
|
FFO per unit of the
Fund ("Unit") - basic and diluted
|
$
0.07
|
$
0.08
|
$
0.17
|
$
0.08
|
AFFO
|
$
840
|
$
953
|
$
1,999
|
$
963
|
AFFO per Unit - basic
and diluted
|
$
0.08
|
$
0.09
|
$
0.18
|
$
0.09
|
Weighted average
interest rate - average during period (8)
|
3.43 %
|
2.44 %
|
3.02 %
|
2.44 %
|
Interest coverage
ratio
|
1.51 x
|
2.28 x
|
1.81 x
|
2.27 x
|
Indebtedness coverage
ratio
|
1.51 x
|
2.28 x
|
1.81 x
|
2.27 x
|
Distributions to
Unitholders
|
$
837
|
$
869
|
$
1,681
|
$
869
|
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 and Hudson on March
31, 2021. In Q2-2022, the Fund acquired Summermill
on April 27, 2022.
|
(2)
|
Economic occupancy for
Q2-2022 and the three months ended December 31, 2021.
|
(3)
|
Same property AMR and
same property AMR per square foot as at June 30, 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 June 30, 2022 is $1,608 and $1.59, respectively. The decline
in AMR and AMR per square foot from December 31, 2021 to June 30,
2022 is as a
result of the acquisition of Summermill which has a lower AMR,
relative to Hudson and Montane.
|
(4)
|
The weighted average
interest rate on loans payable is presented as at June 30,
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 ("Term SOFR") as
applicable
to each loan, as at that date.
|
(5)
|
Property taxes were
adjusted to exclude the International Financial Reporting
Interpretations Committee Interpretation 21, Levies fair value
adjustment
and treat 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, as well as fair value changes in
derivative
financial instruments.
|
(7)
|
Includes distributions
to Unitholders, dividends to preferred shareholders, unrealized
foreign exchange gain, realized foreign exchange loss, fair
value
gain of investment properties, provision for carried interest and
deferred income taxes.
|
(8)
|
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.
|
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 AFFO, AMR, economic occupancy, estimated gap in market
versus in-place rents, FFO, gross book value, indebtedness,
indebtedness coverage ratio, indebtedness to gross book value,
interest coverage ratio 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 Q2-2022 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 ratios
|
Q2-2022
|
Q2-2021
|
YTD-2022
|
YTD-2021
(2)
|
Net income and
comprehensive income
|
$
8,820
|
$
9
|
$
8,820
|
$
9
|
|
(Deduct) / Add:
non-cash or one-time items and distributions (1)
|
(7,616)
|
1
|
(7,616)
|
1
|
Adjusted net income and
comprehensive income
|
$
1,204
|
$
10
|
$
1,204
|
$
10
|
Interest coverage ratio
(3)
|
2.47
x
|
2.08
x
|
2.47
x
|
2.08
x
|
Indebtedness coverage
ratio (4)
|
2.47
x
|
2.08
x
|
2.47
x
|
2.08
x
|
(1)
|
Comprised of unreailzed
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.
|
(2)
|
Figures represent 92
days of operating activity for the Fund on June 30,
2021.
|
(3)
|
Interest coverage ratio
is calculated as adjusted net income and comprehensive income plus
interest expense divided by interest
expense.
|
(4)
|
Indebtedness coverage
ratio is calculated as adjusted net income and comprehensive income
plus interest expense divided by
interest expense and mandatory principal payments on the Fund's
loans payable.
|
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
targeted minimum 11% pre-tax investor internal rate of return
across all classes of Units.
Basic and diluted AFFO and AFFO per Unit for Q2-2022 were
$840 and $0.08, respectively (Q2-2021 - $953 and $0.09),
representing a decrease in AFFO of $113, primarily due to increases in interest
costs partially offset by increases in NOI.
A reconciliation of the Fund's cash provided by operating
activities determined in accordance with IFRS to FFO and AFFO for
Q2-2022, YTD-2022, Q2-2021 and YTD-2021 are provided below:
|
|
Q2-2022
|
Q2-2021
|
YTD-2022
|
YTD-2021
|
Cash provided by
(used in) operating activities
|
|
$
3,981
|
$
2,237
|
$
4,249
|
$
1,912
|
Less: interest costs
|
|
(1,792)
|
(787)
|
(2,612)
|
(796)
|
Cash used in
operating activities - including interest costs
|
|
$
2,189
|
$
1,450
|
$
1,637
|
$
1,116
|
Add /
(Deduct):
|
|
|
|
|
|
Change in non-cash
operating working capital
|
|
(1,851)
|
(665)
|
(236)
|
(654)
|
Change in restricted
cash
|
|
576
|
218
|
722
|
551
|
Amortization of
financing costs
|
|
(172)
|
(122)
|
(248)
|
(124)
|
FFO
|
|
$
742
|
$
881
|
$
1,875
|
$
889
|
Add /
(Deduct):
|
|
|
|
|
|
Amortization of
financing costs
|
|
172
|
122
|
248
|
124
|
Sustaining capital
expenditures and suite renovation reserves
|
|
(74)
|
(50)
|
(124)
|
(50)
|
AFFO
|
|
$
840
|
$
953
|
$
1,999
|
$
963
|
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
the COVID-19 global pandemic, inflation and interest rates 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 COVID-19 on the Properties
as well as the impact of COVID-19 on the markets in which the Fund
operates and the trading price of the Fund's TSX Venture Exchange
listed and unlisted Units, inflation, interest rates, 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 impact of COVID-19 on the Properties as well as the
impact of COVID-19 on the markets in which the Fund operates and
the trading price of the Units and unlisted Units; inflation;
changes in government legislation or tax laws which would impact
any potential income taxes or other taxes rendered or payable with
respect to the Properties or the Fund's legal entities; the
applicability of any government regulation concerning the Fund's
tenants or rents as a result of COVID-19 or otherwise; the extent
and pace at which any changes in interest rates that impact the
Fund's weighted average interest rate may occur; and the
availability of debt financing for any future financing
requirements of the Fund. 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 COVID-19 on the Properties as well as
the impact of COVID-19 on the markets in which the Fund operates
and the trading price of the Units; the applicability of any
government regulation concerning the Fund's tenants or rents as a
result of COVID-19 or otherwise; the realization of property value
appreciation and timing thereof; the inventory of multi-family real
estate properties; the availability of properties for potential
future acquisition, if any, and the price at which such properties
may be acquired; the price at which the Properties may be disposed
and the timing thereof; closing and other transaction costs in
connection with the acquisition and disposition of the Properties;
inflation; the availability of mortgage financing and current
interest rates; the extent of competition for properties; the
growth in NOI and the ability of the Fund to benefit from its light
value-add initiatives; the population of multi-family 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 Properties; the
ability of Starlight Investments US AM Group LP or its affiliates
(the "Manager") to manage and operate the Properties; the global
and North American economic environment; foreign currency exchange
rates; and governmental regulations or tax laws. Given this
unprecedented period of uncertainty, there can be no assurance
regarding: (a) the impact of 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 unaudited condensed consolidated interim
financial statements and MD&A for the three months ended
June 30, 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 August 2022 Newsletter which is available on the
Fund's profile at www.starlightus.com.
Please visit us at www.starlightus.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