/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, March 8, 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 December 31,
2021 ("Q4-2021") and the period from January 8, 2021 (date of formation) to
December 31, 2021 ("YTD-2021"), which
includes 276 days of operating activity (the "Initial Reporting
Period") from the closing date of the Fund's initial public
offering on March 31, 2021 (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 continued to achieve strong operating results for the
fourth quarter, including annualized rent growth of 7.2% and net
operating income ahead of forecast by 4.5%," commented Evan Kirsh, the Fund's President. "The Fund also
achieved rent growth in excess of 12% on new and renewal leases
during January and February 2022 and
strong physical occupancy of 95.3% as at March 7, 2022, positioning the Fund to take
advantage of favorable market conditions."
Q4-2021 HIGHLIGHTS
- During Q4-2021, the Fund recorded a fair value gain on
Hudson at East ("Hudson") and
Montane (together, the "Properties") of $11,554, contributing to the cumulative
$49,444 or 25.9% increase over the
aggregate purchase price since the Properties were acquired by the
Fund on March 31, 2021. The fair
value gain during Q4-2021 was primarily driven by net operating
income ("NOI") growth and capitalization rate compression from
increasing demand in the investment market for multi-family
properties across the markets in which the Fund operates.
- Significant increases in rent growth continued during Q4-2021
with the Fund achieving 7.2% annualized rent growth with in-place
rents at the end of 2021 approximately 3.5% higher than forecasted.
These increases were driven by growth in demand for multi-family
suites due to the economic strength following the downturn created
by coronavirus (SARS – CoV2) and its variants ("COVID-19") in the
U.S. and the markets in which the Fund operates.
- The Fund had collected 99.1% of rents for Q4-2021 as at
March 7, 2022, demonstrating the
Fund's strong tenant profile.
- Net income for Q4-2021 was $4,028, ahead of the financial forecast included
in the Fund's final long form prospectus dated March 19, 2021 ("Forecast") by $4,280.
- Adjusted funds from operations ("AFFO") for Q4-2021 was
$1,017 or 1.7% ahead of Forecast,
with the Fund's AFFO payout ratio at 83.6%, lower than the
forecasted AFFO payout ratio of 85.4%, driven primarily by higher
than forecasted NOI at the Properties.
- On October 25, 2021, the Fund
refinanced the loan payable on Montane by entering into a new
$92,000 first mortgage at an
attractive all-in rate. Given the significant increase in the fair
value of Hudson, the Fund is
evaluating the potential refinancing of the associated loan payable
whereby the net proceeds of any such refinancing along with the
Fund's cash on hand as at December 31,
2021 of $6,445 may provide
sufficient liquidity for the Fund to acquire a third property.
- On December 16, 2021, the Fund
entered into a variable rate collar contract to establish a
guaranteed monthly exchange rate between C$1.2575 and C$1.3200 for the conversion of U.S. dollar funds
to Canadian dollar funds amounting to C$312 per month from February 10, 2022 to July
12, 2022 and C$156 per month
from August 10, 2022 to November 14, 2022. The contract was entered into
to protect against the potential impact of any weakening of the
U.S. dollar on the amounts required to pay 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.
INITIAL REPORTING PERIOD HIGHLIGHTS
- The Fund completed the Offering on March
31, 2021 and raised gross subscription proceeds of
$85,408, which were used to acquire
the Properties on March 31, 2021,
which included a total of 675 suites in Denver, Colorado and Orlando, Florida.
- NOI for YTD-2021 was $6,538
(Forecast - $6,386), representing an
increase of $152 or 2.4% compared to
the Forecast, primarily due to higher than forecasted revenue at
the Properties.
- Net income for YTD-2021 was $23,770 (Forecast - loss of $696), an increase of $24,466 compared to Forecast.
- AFFO for YTD-2021 was $3,105
(Forecast - $3,072) with the Fund's
AFFO payout ratio at 82.8%, lower than Forecast by approximately 90
basis points driven primarily by higher than forecasted NOI.
COVID-19 IMPACT
On March 11, 2020, the World
Health Organization characterized the outbreak of COVID-19 as a
global pandemic. Although COVID-19 has resulted in a volatile
economy, the Fund believes it is well positioned to navigate
through this challenging time and continues to undertake proactive
measures at the Fund's properties to combat the spread of COVID-19,
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 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 COVID-19 booster 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, changing strains of the virus, including the
occurrence of new variants of COVID-19 (such as the Omicron
variant), 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 December 2021
declined to 3.9% (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. Further
disclosure surrounding the impact of COVID-19 is included in the
Fund Management's Discussion and Analysis ("MD&A") in the
"COVID-19" and "Future Outlook" sections for YTD-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 December 31, 2021 and for
Q4-2021 and YTD-2021 is provided below:
|
|
|
|
As at December 31,
2021
|
Operational
Information (1)
|
|
|
|
|
Number of
properties
|
|
|
|
2
|
Total
suites
|
|
|
|
675
|
Economic occupancy
(2)
|
|
|
|
93.6%
|
AMR (in actual
dollars)
|
|
|
|
$
|
1,617
|
AMR per square foot
(in actual dollars)
|
|
|
|
$
|
1.67
|
Summary of
Financial Information
|
|
|
|
|
Gross book
value
|
|
|
|
$
|
255,200
|
Indebtedness
|
|
|
|
$
|
131,063
|
Indebtedness to gross
book value
|
|
|
|
51.4%
|
Weighted average
interest rate - as at period end (3)
|
|
|
|
2.49%
|
Weighted average loan
term to maturity
|
|
|
|
4.86 years
|
|
Q4-2021
(4)
|
Forecast
Q4-2021 (4)
|
YTD-2021
(4)
|
Forecast
YTD-2021 (4)
|
Summarized Income
Statement
|
|
|
|
|
Revenue from property
operations
|
$
|
3,391
|
$
|
3,255
|
$
|
10,104
|
$
|
9,869
|
Property operating
costs
|
$
|
(855)
|
$
|
(779)
|
$
|
(2,464)
|
$
|
(2,348)
|
Property taxes
(5)
|
$
|
(342)
|
$
|
(377)
|
$
|
(1,102)
|
$
|
(1,135)
|
Adjusted income from
operations / NOI
|
$
|
2,194
|
$
|
2,099
|
$
|
6,538
|
$
|
6,386
|
Finance costs
(including non-cash items) (6)
|
$
|
(1,567)
|
$
|
(896)
|
$
|
(3,533)
|
$
|
(2,705)
|
Distributions to
unitholders of the Fund ("Unitholders")
|
$
|
(850)
|
$
|
(854)
|
$
|
(2,570)
|
$
|
(2,571)
|
Distributions to
preferred shareholders
|
$
|
(4)
|
$
|
(4)
|
$
|
(8)
|
$
|
(8)
|
Fund and trust
expenses
|
$
|
(305)
|
$
|
(259)
|
$
|
(859)
|
$
|
(780)
|
Unrealized foreign
exchange (loss) gain
|
$
|
(5)
|
$
|
-
|
$
|
12
|
$
|
-
|
Realized foreign
exchange gain (loss)
|
$
|
4
|
$
|
-
|
$
|
3
|
$
|
-
|
Fair value adjustment
on investment properties
|
$
|
11,554
|
$
|
-
|
$
|
49,444
|
$
|
-
|
Provision for carried
interest
|
$
|
(3,301)
|
$
|
-
|
$
|
(11,211)
|
$
|
-
|
Deferred income
taxes
|
$
|
(3,692)
|
$
|
(338)
|
$
|
(14,046)
|
$
|
(1,018)
|
Net income (loss) and
comprehensive income (loss)
|
$
|
4,028
|
$
|
(252)
|
$
|
23,770
|
$
|
(696)
|
Other Selected
Financial Information
|
|
|
|
|
Funds from operations
("FFO") (7)
|
$
|
348
|
$
|
944
|
$
|
2,290
|
$
|
2,901
|
FFO per unit of the
Fund ("Unit") - basic and diluted (7)
|
$
|
0.03
|
$
|
0.09
|
$
|
0.21
|
$
|
0.27
|
AFFO
|
$
|
1,017
|
$
|
1,000
|
$
|
3,105
|
$
|
3,072
|
AFFO per Unit - basic
and diluted
|
$
|
0.09
|
$
|
0.09
|
$
|
0.28
|
$
|
0.28
|
Weighted average
interest rate - average during period (8)
|
2.48%
|
2.49%
|
2.46%
|
2.49%
|
Interest coverage
ratio
|
2.29 x
|
2.33 x
|
2.34 x
|
2.35 x
|
Indebtedness coverage
ratio
|
2.29 x
|
2.33 x
|
2.34 x
|
2.35 x
|
Distributions to
Unitholders
|
$
|
850
|
$
|
854
|
$
|
2,570
|
$
|
2,571
|
FFO payout ratio
(7)
|
244.3%
|
90.5%
|
112.2%
|
88.6%
|
AFFO payout
ratio
|
83.6%
|
85.4%
|
82.8%
|
83.7%
|
Weighted Average
Units Outstanding (000s) - basic/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 Q4-2021.
|
(3)
|
The weighted average
interest rate on loans payable is presented as at December 31, 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)
|
Figures represent the
actual results of Q4-2021 and YTD-2021 with Forecast Q4-2021 and
Forecast YTD-2021 representing the Forecast adjusted for Q4-2021
and the Initial Reporting Period.
|
(5)
|
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 consolidated financial statements for the
period from January 8, 2021 (date of formation) to December 31,
2021.
|
(6)
|
Finance costs include
interest expense on loans payable as well as non-cash amortization
of deferred financing costs, fair value changes in derivative
financial instruments as well as any loss on the early
extinguishment of loans payable.
|
(7)
|
Basic and diluted FFO
and FFO per Unit for Q4-2021 and YTD-2021 were lower than Forecast
primarily due to the loss on early extinguishment of debt related
to expensing the unamortized deferred financing costs associated
with the refinancing of the Montane loan payable in October
2021.
|
(8)
|
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.
|
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, 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. Gross book value is defined as the fair
market value of the investment properties as determined in
accordance with IFRS. Indebtedness is defined as the principal
amount of loans payable outstanding as at a specific reporting
date. AFFO payout ratio is calculated by taking distributions
declared and dividing by AFFO in a given reporting period. FFO
payout ratio is calculated by taking distributions declared and
dividing by FFO in a given reporting period. 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 YTD-2021 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
|
Q4-2021
(1)
|
Forecast
Q4-2021 (1)
|
YTD-2021
(1)
|
Forecast
YTD-2021 (1)
|
Net loss and
comprehensive loss
|
$
|
4,028
|
$
|
(252)
|
$
|
23,770
|
$
|
(696)
|
|
Add: non-cash or
one-time items and distributions (2)
|
$
|
(2,964)
|
$
|
1,299
|
$
|
(20,519)
|
$
|
3,913
|
Adjusted net income
and comprehensive income
|
$
|
1,064
|
$
|
1,047
|
$
|
3,251
|
$
|
3,217
|
Interest coverage
ratio (3)
|
2.29x
|
2.33x
|
2.34x
|
2.35x
|
Indebtedness coverage
ratio (4)
|
2.29x
|
2.33x
|
2.34x
|
2.35x
|
(1)
|
Figures represent the
actual results of Q4-2021 and YTD-2021 with Forecast Q4-2021 and
Forecast YTD-2021 representing the Forecast adjusted for Q4-2021
and the Initial Reporting Period.
|
(2)
|
Non-cash or one-time
items consist of deferred taxes, amortization of financing costs
and loan premiums, fair value adjustments on derivative
instruments, and unrealized foreign exchange gains and
losses.
|
(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.
AFFO and AFFO per Unit for Q4-2021 were $1,017 and $0.09,
respectively (Forecast - $1,000 and
$0.09), representing an increase in
AFFO of $17 or 1.7%, primarily due to
higher than forecasted NOI at the Properties, partially offset by
higher than forecasted interest expense on the loans payable and
higher than forecasted fund and trust expenses during YTD-2021.
AFFO and AFFO per Unit for YTD-2021 were $3,105 and $0.28,
respectively (Forecast - $3,072 and
$0.28), representing an increase of
$33 or 1.1%, primarily due to the
same reasons described above for Q4-2021.
A reconciliation of the Fund's cash provided by operating
activities determined in accordance with IFRS to FFO and AFFO for
YTD-2021 is provided below:
|
Q4-2021
|
YTD-2021
|
Cash provided by
operating activities
|
$
|
2,531
|
$
|
6,276
|
Less: interest
costs
|
(825)
|
(2,424)
|
Cash provided by
operating activities - including interest costs
|
$
|
1,706
|
$
|
3,852
|
Add /
(Deduct):
|
|
|
Change in non-cash
operating working capital
|
37
|
(978)
|
Change in restricted
cash
|
(675)
|
384
|
Amortization of
financing costs
|
(103)
|
(351)
|
Loss on early
extinguishment of debt
|
(617)
|
(617)
|
FFO
|
$
|
348
|
$
|
2,290
|
Add /
(Deduct):
|
|
|
Amortization of
financing costs
|
103
|
351
|
Loss on early
extinguishment of debt
|
617
|
617
|
Sustaining capital
expenditures and suite renovation reserves
|
(51)
|
(153)
|
AFFO
|
$
|
1,017
|
$
|
3,105
|
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 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, acquisitions including a third property,
financing including the refinancing of Hudson, 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; 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 availability of debt financing
for any future financing requirements of the Fund; and the
availability and price at which any potential future acquisitions
may be acquired including a third property. 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 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 Properties may
be disposed and the timing thereof; closing and other transaction
costs in connection with the acquisition and disposition of
Properties; 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 two properties, consisting of 675 suites with an
average year of construction in 2019.
For the Fund's complete audited consolidated financial
statements for the period from January 8,
2021 to December 31, 2021 as
well as the MD&A for the three months ended December 31, 2021 and for the period from
January 8, 2021 to December 31, 2021 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 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