STARLIGHT WESTERN CANADA MULTI-FAMILY (NO. 2) FUND ANNOUNCES Q3-2024 OPERATING RESULTS INCLUDING YEAR-OVER-YEAR RENT GROWTH OF 3.8%

TORONTO, Nov. 14, 2024 /CNW/ - Starlight Western Canada Multi-Family (No. 2) Fund (the "Fund") announced today its results of operations and financial condition for the three months ended September 30, 2024 ("Q3-2024") and nine months ended September 30, 2024 ("YTD-2024"). Certain comparative figures are included for the Fund's financial and operational performance as at December 31, 2023, for the three months ended September 30, 2023 ("Q3-2023") and for the nine months ended September 30, 2023 ("YTD-2023").

All amounts in this press release are in thousands of Canadian dollars except for average monthly rent ("AMR")¹, or unless otherwise stated.

"We are pleased to announce another quarter of strong operating results with the Starlight Western Canada Multi-Family (No. 2) Fund achieving year-over-year average monthly rent growth of 3.8%," commented Daniel Drimmer, Chief Executive Officer. "Management's singular focus is to increase net operating income at its properties through an active asset management strategy with the goal of maximizing the total return to investors."

Q3-2024 HIGHLIGHTS

• The Fund achieved approximately 3.8% AMR growth between Q3-2023 and Q3-2024, continuing to be driven by sustained demand for multi-family suites due to the economic strength and sustained immigration levels in Canada and in particular, the Vancouver Island and the mainland of the Province of British Columbia ("BC") (collectively, the "Primary Markets").
• The Fund achieved physical occupancy¹ of 96.5% for the nine multi-family properties owned (the "Properties") as at September 30, 2024, which subsequently increased to 97.4% as at November 14, 2024.
• Revenue from property operations and net operating income ("NOI")¹ for Q3-2024 were $5,502 and $3,769 (Q3-2023 - $4,815 and $3,517), respectively, representing increases of $687 and $252 relative to Q3-2023. These significant increases were primarily due to the difference in the number of Properties owned between Q3-2023 and Q3-2024.
• The Fund had approximately $1,808 of available liquidity as at September 30, 2024, which is expected to be used to fund existing operations.
• As at November 14, 2024, the Fund had collected approximately 99.3% of rents for Q3-2024, 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")¹ for Q3-2024 was $847 (Q3-2023 - $621), representing an increase of $226 or 36.4% relative to Q3-2023, primarily due to an increase in NOI, partially offset by higher fund and trust expenses.
• On November 14, 2024, the Fund's board of trustees (the "Board"), approved a one-year extension of the Fund's term to February 22, 2026 to provide the Fund with additional flexibility to capitalize on anticipated improvements to the real estate investment market.

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 and Reconciliations").

YTD-2024 HIGHLIGHTS 

• During YTD-2024, the Fund recorded a fair value gain on its Properties of $11,932, a cumulative increase of 15.0% over the aggregate purchase price since the Properties were acquired by the Fund. The fair value gain during YTD-2024 was entirely driven by NOI growth.
• During YTD-2024, the Board approved a 13.8% increase to the Fund's monthly pre-tax distribution per unit for all classes of units ("Units").
• During YTD-2024, the Fund received $1,851 related to incremental interest owing on historical bank balances from the Fund's corporate banking provider, a Canadian chartered bank, further enhancing its liquidity position.
• During YTD-2024, the Fund entered into various financing arrangements with lenders, increasing its fixed rate debt from 80.5% to 91.1% of its total debt and reducing its total weighted average interest rate from 3.78% to 3.38%. As at September 30, 2024, the Fund's weighted average fixed interest rate and term to maturity were 3.04% and 5.54 years, respectively.
• Revenue from property operations and NOI for YTD-2024 were $16,127 and $11,174 (YTD-2023 - $14,130 and $10,137), respectively, representing increases of $1,997 and $1,037 relative to YTD-2023. These significant increases were primarily due to the difference in the number of Properties owned between YTD-2023 and YTD-2024.
• Net income and comprehensive income attributable to the Unitholders for YTD-2024 was $9,070 (YTD-2023 - $6,062), representing an increase of $3,008 relative to YTD-2023, primarily due to the fair value gain on the Properties, interest income and increased NOI, partially offset by a higher provision for carried interest as well as increases to finance costs, fund and trust expenses and distributions to Unitholders.
• AFFO for YTD-2024 was $1,846 (YTD-2023 - $1,235), representing an increase of $611 or 49.5% relative to YTD-2023 primarily due to higher NOI between YTD-2023 and YTD-2024, partially offset by higher finance costs and fund and trust expenses.

FINANCIAL CONDITION AND OPERATING RESULTS

Highlights of the financial and operating performance of the Fund as at September 30, 2024, for Q3-2024 and YTD-2024, including a comparison to December 31, 2023, Q3-2023 and YTD-2023, as applicable, are provided below:

					September 30, 2024	December 31, 2023
Key Multi-Family Operational Information
Number of multi-family properties owned					9	9
Total multi-family suites					944	944
Economic occupancy ^(1) (2)					92.5 %	93.7 %
Physical occupancy ^(1)					96.5 %	95.0 %
AMR (in actual dollars)					$                   1,995	$                   1,934
AMR per square foot (in actual dollars)					$                     2.55	$                     2.47
Summary of Financial Information
Gross Book Value ^(2)					$               432,240	$               419,500
Indebtedness ^(2)					$               267,415	$               267,171
Indebtedness to Gross Book Value ^(2)					61.9 %	63.7 %
Weighted average interest rate - as at period end ^(3)					3.38 %	3.78 %
Weighted average loan term to maturity					5.19 years	4.53 years
			Q3-2024	Q3-2023	YTD-2024	YTD-2023
Summary of Financial Information
Revenue from property operations			$                   5,502	$                   4,815	$                 16,127	$                 14,130
Property operating costs			(1,313)	(979)	(3,692)	(3,035)
Property taxes			(420)	(319)	(1,261)	(958)
Income from rental operations / NOI			$                   3,769	$                   3,517	$                 11,174	$                 10,137
Net income and comprehensive income			$                      710	$                      772	$                   9,070	$                   6,062
Other Selected Financial Information
Funds from operations ("FFO") ^(2)			$                      547	$                      402	$                      980	$                      532
FFO per Unit - basic and diluted ^(2)			$                     0.04	$                     0.03	$                     0.08	$                     0.04
AFFO			$                      847	$                      621	$                   1,846	$                   1,235
AFFO per Unit - basic and diluted ^(2)			$                     0.07	$                     0.05	$                     0.14	$                     0.10
Weighted average interest rate			3.40 %	3.74 %	3.43 %	3.69 %
Interest coverage ratio ^(2)			1.41x	1.34x	1.33x	1.24x
Indebtedness coverage ratio ^(2)			1.00x	0.99x	0.96x	0.74x
Weighted average Units outstanding (000s) - basic and diluted			12,958	12,980	12,968	12,991

(1)	Economic occupancy for Q3-2024 and Q4-2023 and physical occupancy as at the end of each applicable reporting period. As at November 14, 2024, the Fund had increased physical occupancy to 97.4%.
(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 September 30, 2024 and December 31, 2023, respectively.

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 such as AFFO, AMR, adjusted net income and comprehensive income, cash provided by operating activities including interest and finance costs, economic occupancy, physical occupancy, 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, are not measures defined under IFRS as prescribed by the International Accounting Standards Board, do not have standardized meanings prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures as reported by other issuers. The Fund uses these measures to better assess its underlying performance 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 Q3-2024 and are 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		Q3-2024	Q3-2023	YTD-2024	YTD-2023
Net income and comprehensive income		$                  710	$                  772	$               9,070	$               6,062
(Deduct) / Add: non-cash or one-time items including distributions ^(1)		227	(7)	(6,716)	(4,396)
Adjusted net income and comprehensive income ^(2)		$                  937	$                  765	$               2,354	$               1,666
Interest coverage ratio ^(3)		1.41x	1.34x	1.33x	1.24x
Indebtedness coverage ratio^(4)		1.00x	0.99x	0.96x	0.74x

(1)	Non-cash or one-time items consist of amortization of deferred financing costs, other financing costs, fair value adjustment on investment properties, interest income and provision for carried interest.
(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)	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 for a specific reporting period.

For Q3-2024, the interest coverage ratio and the indebtedness coverage ratio were 1.41x and 1.00x (Q3-2023 - 1.34x and 0.99x), respectively. The increase in both ratios during Q3-2024 relative to Q3-2023 was primarily due to higher NOI as well as the impact of lower interest rates on variable debt and the increase to the proportion of the Fund's fixed rate debt. To the extent that these ratios are below 1.0x, any shortfall is covered by cash on hand.

CASH PROVIDED BY OPERATING ACTIVITIES RECONCILIATION TO FFO and AFFO

The Fund was formed as a "closed-end" fund with an initial term of three years, a targeted annual yield of 3.0% to 4.0% and a targeted minimum 12.0% pre-tax total investor internal rate of return across all Units.

Basic and diluted AFFO and AFFO per Unit for Q3-2024 were $847 and $0.07 (Q3-2023 - $621 and $0.05), respectively, representing an increase in AFFO of $226 or 36.4%, primarily due to an increase in NOI, partially offset by higher fund and trust expenses.

A reconciliation of the Fund's cash provided by operating activities determined in accordance with IFRS to FFO and AFFO for Q3-2024, Q3-2023, YTD-2024 and YTD-2023 is provided below:

	Q3-2024	Q3-2023	YTD-2024	YTD-2023
Cash provided by operating activities	$               2,826	$               3,290	$               9,333	$               8,313
Less: interest and finance costs	(2,319)	(2,341)	(7,442)	(7,244)
Cash provided by operating activities - including interest and finance costs	$                  507	$                  949	$               1,891	$               1,069
Add / (Deduct):
Change in non-cash operating working capital	361	(285)	46	252
Change in restricted cash	27	(1)	51	39
Amortization of deferred financing costs	(348)	(261)	(1,008)	(828)
FFO	$                  547	$                  402	$                  980	$                  532
Add / (Deduct):
Amortization of deferred financing costs	348	261	1,008	828
Sustaining capital expenditures and suite renovation reserves	(48)	(42)	(142)	(125)
AFFO	$                  847	$                  621	$               1,846	$               1,235

The Fund's cash provided by operating activities, including interest and finance costs for Q3-2024 was $507 (Q3-2023 - $949), which was lower than distributions declared to Unitholders by $627 (Q3-2023 - $49). The shortfall in Q3-2024 was primarily due to the timing of operating payments. Any shortfall between cash provided by operating activities and distributions paid is covered by cash on hand.

SUBSEQUENT EVENTS

On November 14, 2024, the Board approved a one-year extension of the Fund's term to February 22, 2026 to provide the Fund with additional flexibility to capitalize on anticipated improvements to the real estate investment market.

FUTURE OUTLOOK

Throughout 2022 and 2023, concerns over rising inflation contributed to a significant increase in interest rates with the Bank of Canada raising its target interest rate from 0.25% in early 2022 to 5.0% as of Q1-2024. Increases in target interest rates typically lead to increases in borrowing costs. Although inflation in Canada persists, it has declined from its peak in June 2022 of 8.1% to 1.6% in September 2024 with improvements in global supply chains and the effects of higher interest rates moving through the economy. As a result, the Bank of Canada has reduced its target interest rate by a total of 125 basis points since June 2024, bringing it down to 3.75% as of November 14, 2024.

The significant increases in interest rates have also contributed to an increase in volatility across capital markets, leading banks and other debt providers to reduce their lending capacity while increasing the cost of new loans. Operating fundamentals continue to be favorable as evidenced by the operating results achieved by the Fund and the Fund has made steady progress in mitigating the significant increases in interest rates by increasing the amount of fixed rate debt to 91.1% of its total debt as at September 30, 2024. 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 annual yield of 3.0% to 4.0% across all classes of Units despite elevated interest rates. The Fund continues to actively monitor the current interest rate environment and any associated impact this may have on the Fund's financial performance and ability to pay distributions.

According to Statistics Canada, the September 2024 unemployment rate in Canada was 6.0%, as compared to an unemployment rate of 5.5% in BC, including the Primary Markets. BC gained approximately 36,900 jobs between January 2024 and September 2024, demonstrating the economic strength of the Primary Markets. The effect of decreasing interest rates is expected to further increase employment levels in Canada and in BC.

Each year, the Federal Department of Immigration, Refugees and Citizenship Canada ("IRCC") releases a new Immigration Levels Plan to guide its operations. In 2023, IRCC welcomed a record of more than 470,000 immigrants to Canada with a target of 485,000 immigrants for 2024. Canada's initial target was to welcome 500,000 new permanent residents each year, however, subsequent to September 2024, these targets were adjusted to 395,000 and 380,000 for the years of 2025 and 2026, respectively, with a further reduction to 365,000 for 2027. The Fund does not expect significant business impacts from these adjustments, as the core fundamentals of the economy remain robust, and the housing supply-demand gap persists despite the changes in immigration targets.

The above factors, including the lack of housing supply and affordability has made it more challenging for existing residents of multi-family properties to buy homes. In addition, the construction slowdown of new homes due to higher interest rates has also continued to result in increased demand for multi-family suites.

The Primary Markets, including Langford, Nanaimo, Vernon and Langley, possess attractive qualities such as some of the fastest growing populations in BC with strong demographics of highly educated young professionals and families, diverse local job sectors, desirable dwelling locations with waterfront and mountain views, as well as significant economic growth creating an environment for continued demand which drives occupancy and rent growth given the limited supply of multi-family suites. The Fund believes it is well positioned to take advantage of increasing levels of immigration and favourable market conditions.

Further disclosure surrounding the Future Outlook is included in the Fund's management's discussion and analysis in the "Future Outlook" section for Q3-2024 under the Fund's profile, which is available on 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 reflect the Fund's current expectations regarding future events, including the overall financial performance of the 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. 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, interest rates, 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 "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 higher levels of inflation and the potential impact on the Fund's operating costs; 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 residents or rents; the realization of property value appreciation and the timing thereof; 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. 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 applicability of any government regulation concerning the Fund's residents or rents; the realization of property value appreciation and the timing thereof; the inventory of residential real estate properties; the ability of the Fund to benefit from any asset management initiatives at certain Properties; the price at which the Properties may be disposed and the timing thereof; closing and other transaction costs in connection with the disposition of the Properties; availability of mortgage financing and current rates and market expectations for future interest rates; the capital structure of the Fund; the extent of competition for residential properties; the growth in NOI generated from asset management 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 Properties; the ability of Starlight Investments CDN AM Group LP (the "Manager") to manage and operate the Properties; the global and Canadian economic environment; the impact, if any, of inflation on the Fund's operating costs; and governmental regulations or tax laws. There can be no assurance regarding: (a) inflation or changes in interest rates on the Fund's business, operations or performance; (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 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 STARLIGHT WESTERN CANADA MULTI-FAMILY (NO. 2) FUND

The Fund is a trust formed under the laws of Ontario for the primary purpose of indirectly acquiring, owning and operating a portfolio of income producing multi-family rental properties located in BC. The Fund has interests in and operates a portfolio comprising interests in 944 income producing multi-family suites located in the Primary Markets.

For the Fund's complete condensed consolidated interim financial statements and MD&A for the three and nine months ended September 30, 2024 and any other information related to the Fund, please visit www.sedarplus.ca. 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 November 2024 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-.

SOURCE Starlight Western Canada Multi-Family (No. 2) Fund

Daniel Drimmer, Founder and Chief Executive Officer, Starlight Western Canada Multi-Family (No. 2) Fund, [phone], [email protected]; Martin Liddell, Chief Financial Officer, Starlight Western Canada Multi-Family (No. 2) Fund, [phone], [email protected]