Starlight U.S. Multi-Family (No. 2) Core Plus Fund Announces Second Quarter Results With Strong Rent Growth, Occupancy and Collections

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

TORONTO, Aug. 10, 2021 /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, 2021 ("Q2-2021") and the period from January 8, 2021 (date of formation) to June 30, 2021 ("YTD-2021"), which includes 92 days of operating activity (the "Initial Reporting Period") from March 31, 2021, the closing date of the Fund's initial public offering (the "Offering").

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. 

"The Fund was able to take advantage of strong leasing trends during the second quarter by increasing economic occupancy to 94.9% with further increases in physical occupancy to approximately 96%" commented Evan Kirsh, the Fund's President. "The Fund also achieved strong annualized rent growth of 3.4% during the second quarter. The Fund is well positioned to capture further rent growth as the economic recovery continues. Rent increases on new leases in July 2021 were in excess of 10%."

Q2-2021 HIGHLIGHTS

• Revenue, property operating costs, property taxes and net operating income ("NOI") were primarily in line with the financial forecast included in the Fund's prospectus dated March 19, 2021 (the "Forecast") for Q2-2021.
• As at August 9, 2021, the Fund had collected 98.9% of rents for Q2-2021 with further amounts expected to be collected in future periods.
• Adjusted funds from operations ("AFFO") for Q2-2021 was $953 (Forecast - $1,022) with the Fund's AFFO payout ratio at 91.2%, slightly higher than the forecasted AFFO payout ratio of 84.5% (see "Non-IFRS Financial Measures").
• The Fund declared its first distribution on April 30, 2021 at the distribution rate set out in the Fund's long form prospectus following the Fund's first full month of operations in April 2021.
• Subsequent to June 30, 2021, the Fund entered into a six-month variable rate collar contract which allows the Fund to establish a guaranteed monthly exchange rate between C$1.255 and C$1.3135 for the conversion of U.S. dollar funds to C$. The contract was entered into to protect against the potential impact of any weakening of the U.S. dollar on 50% of the amount required to fund the Fund's monthly Canadian dollar distributions and ensure a more favorable exchange rate for conversion of these funds when compared to the rate used to convert the proceeds from the Offering into U.S. dollars of C$1.252. The first monthly settlement occurs on August 10, 2021.

INITIAL REPORTING PERIOD HIGHLIGHTS

• The Fund completed the Offering on March 31, 2021 and raised gross subscription proceeds of $85,408.
• Using the proceeds from the Offering, the Fund completed the acquisition of the Fund's properties on March 31, 2021, which included a total of 675 suites in Denver, Colorado and Orlando, Florida.

COVID-19 IMPACT

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic ("COVID-19"). Although COVID-19 has resulted in a volatile economy, the Fund is well positioned to navigate through this challenging time and continues to undertake proactive measures at the Fund's properties to combat the spread, assist tenants where needed and implement other measures to minimize business interruption. The Fund intends to actively monitor any continued impact COVID-19 may have on the Fund's operating results in future periods specifically as they relate to rent collections, occupancy, rent growth, ancillary fees and expenses incurred for preventative measures in response to COVID-19.

COVID-19 immunization 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. However, there is a risk that delays in the timely administration, changing strains of the virus 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 2021 declined to 5.9% (from a peak of approximately 15% in April 2020) with such employment gains 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.

During Q2-2021, key multi-family fundamentals improved significantly including strengthening occupancy, rent growth and collection rates which translated into the operating results of various owners of multi-family properties, including those in the primary markets. These trends, in conjunction with the primary markets exhibiting sustained job and population growth historically as a result of lifestyle choices as well as positive net migration, should continue to support further demand for multi-family apartments in future periods. In addition, previous economic downturns have typically been followed by periods of above market rent growth for multi-family properties in the U.S. Consistent with this trend, the Fund's properties achieved rent growth on new leases in excess of 10% during Q2-2021.

COVID-19 has also significantly disrupted active and new construction of comparable product in the markets the Fund operates in which may create a temporary imbalance in supply of comparable, multi-suite residential properties. This imbalance, alongside the continued economic recovery and improving fundamental statistics, could be supportive of favourable supply and demand conditions for the Fund's properties 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 its properties and the benefit of having a tenant pool employed across a diverse job base. Since the COVID-19 outbreak commenced, based on available investment sales information, capitalization rates in the markets the Fund operates in have compressed on average by approximately 50-100 basis points.

Further disclosure surrounding the impact of COVID-19 are included in the Fund Management's Discussion and Analysis ("MD&A") in the "COVID-19" and "Future Outlook" sections for Q2-2021 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, 2021 and for Q2-2021 and the Initial Reporting Period is provided below:

									As at  June 30, 2021
Operational Information ^(1)
Number of properties									2
Total suites									675
Economic occupancy ^(2)									94.9%
AMR (in actual dollars)									$	1,541
AMR per square foot (in actual dollars)									$	1.59
Summary of Financial Information
Gross Book Value									$	205,079
Indebtedness									$	127,434
Indebtedness to Gross Book Value									62.1%
Weighted average interest rate - as at period end ^(3)									2.47%
Weighted average loan term to maturity									2.56 years
			Q2-2021		Forecast Q2-2021		YTD-2021^(6)		Forecast^(7)
Summary of Financial Information
Revenue from property operations			$	3,273	$	3,310	$	3,308	$	3,345
Property operating costs			$	(817)	$	(812)	$	(826)	$	(821)
Property taxes ^(4)			$	(378)	$	(377)	$	(382)	$	(381)
Adjusted Income from operations / NOI			$	2,078	$	2,121	$	2,100	$	2,143
Fund and trust expenses			$	(280)	$	(259)	$	(283)	$	(262)
Finance costs			$	(1,025)	$	(898)	$	(1,036)	$	(909)
Distributions to Unitholders			$	(869)	$	(863)	$	(869)	$	(863)
Unrealized foreign exchange gain			$	24	$	-	$	29	$	-
Unrealized foreign exchange gain			$	(8)	$	-	$	(8)	$	-
Deferred income taxes			$	(537)	$	(338)	$	(541)	$	(342)
Net income and comprehensive income			$	(617)	$	(237)	$	(608)	$	(233)
Funds from operations ("FFO")			$	881	$	964	$	889	$	972
FFO per Unit - basic and diluted			$	0.08	$	0.09	$	0.08	$	0.09
Adjusted funds from operations ("AFFO")			$	953	$	1,022	$	963	$	1,032
AFFO per Unit - basic and diluted			$	0.09	$	0.09	$	0.09	$	0.09
Weighted average interest rate - average during period ^(5)			2.44%		2.49%		2.44%		2.49%
Interest coverage ratio			2.28 x		2.36 x		2.27 x		2.36 x
Indebtedness coverage ratio			2.28 x		2.36 x		2.27 x		2.36 x
FFO payout ratio			98.7%		89.5%		97.8%		88.8%
AFFO payout ratio			91.2%		84.5%		90.3%		83.7%
Weighted Average Units Outstanding (000s) - basic and diluted			10,902		10,902		10,902		10,902

(1)	The Fund commenced operations following the acquisition of the Fund's properties on March 31, 2021.
(2)	Economic occupancy for Q2-2021.
(3)	The weighted average interest rate on loans payable is presented as at June 30, 2021 reflecting the prevailing index rate, U.S. 30-day London Interbank Offered Rate ("LIBOR") or U.S. 30-day Secured Overnight Financing Rate ("SOFR"), as applicable to each loan, as at that date.
(4)	Property taxes were adjusted to exclude the International Financial Reporting Interpretations Committee interpretation 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 condensed consolidated interim financial statements for Q2-2021 and YTD-2021.
(5)	The weighted average interest rate on loans payable presented reflects the average prevailing index rate, LIBOR or SOFR as applicable to each of the loans payable, throughout each period presented.
(6)	Figures represent the actual results of the Initial Reporting Period.
(7)	Figures represent the YTD-2021 Forecast adjusted for the Initial Reporting Period.

CASH USED IN OPERATING ACTIVITIES RECONCILIATION TO AFFO

AFFO and AFFO per unit for Q2-2021 were $953 and $0.09, respectively (Forecast - $1,022 and $0.09), representing a decrease in AFFO of $69 or 6.8%, primarily due to lower than forecasted NOI as well as higher than forecasted distributions paid as a result of the impact of the weakening U.S. dollar in Q2-2021 on the amount required to fund the monthly C$ distributions relative to the Forecast.

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 of the Fund.

A reconciliation of cash used in operating activities determined in accordance with International Financial Reporting Standards ("IFRS") to AFFO for Q2-2021 and YTD-2021 is provided below:

		Q2-2021		YTD-2021
Cash provided by operating activities		$	2,237	$	1,912
Less: interest paid		(787)		(796)
Cash provided by operating activities - including interest paid		$	1,450	$	1,116
Add / (Deduct):
Change in non-cash operating working capital		(665)		(654)
Change in restricted cash		218		551
Sustaining capital expenditures and suite renovation reserves		(50)		(50)
AFFO		$	953	$	963

NON-IFRS FINANCIAL MEASURES

The Fund's consolidated financial statements are prepared in accordance with IFRS. Certain terms that may be used in this press release including AFFO, AFFO payout ratio, AMR, economic occupancy, FFO, FFO payout ratio, 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. Details on Non-IFRS Measures are set out in the Fund's MD&A in the "Non-IFRS Financial Measures" section for Q2-2021 and are available on the Fund's profile on SEDAR at 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 COVID-19 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 Fund's portfolio as well as the impact of COVID-19 on the markets in which the Fund operates, including the Manager's belief of the increased desire to live in less densely populated areas, and the potential for favourable market conditions for multi-family real estate following economic downturns and the trading price of the Fund's listed units, acquisitions, performance, achievements, events, prospects or opportunities for the Fund or the real estate industry and may include statements regarding the financial position, business strategy, acquisitions, budgets, litigation, projected costs, capital expenditures, financial results, occupancy levels, AMR, taxes and plans and objectives of or involving the Fund.  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 information necessarily involves 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, assumptions may not be correct and objectives, strategic goals and priorities may not be achieved. Those risks and uncertainties include: the impact of COVID-19 on the Fund's portfolio as well as the impact of COVID-19 on the markets in which the Fund operates and the trading price of the Fund's 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; and the applicability of any government regulation concerning the Fund's tenants or rents as a result of COVID-19 or otherwise. 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 Fund's portfolio as well as the impact of COVID-19 on the markets in which the Fund operates and the trading price of the Fund's listed units; the applicability of any government regulation concerning the Fund's tenants or rents as a result of COVID-19 or otherwise; the inventory of multi-family real estate properties; the availability of properties for acquisition and the price at, which such properties may be acquired; the availability of loan financing and current interest rates; the ability to complete value-add initiatives; the extent of competition for properties; the population of multi-family real estate market participants; assumptions about the markets in which the Fund operates; the ability of 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.

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 law, the Fund undertakes no obligation to update or revise publicly any forward-looking information, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

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

Evan Kirsh, President, Starlight U.S. Multi-Family (No. 2) Core Plus Fund, [phone], [email protected]; Martin Liddell, Chief Financial Officer, Starlight U.S. Multi-Family (No. 2) Core Plus Fund, [phone], [email protected]