/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:
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As at
June 30, 2021
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Operational
Information (1)
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Number of
properties
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2
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Total
suites
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675
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Economic occupancy
(2)
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94.9%
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AMR (in actual
dollars)
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$
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1,541
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AMR per square foot
(in actual dollars)
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$
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1.59
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Summary of
Financial Information
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Gross Book
Value
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$
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205,079
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Indebtedness
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|
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$
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127,434
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Indebtedness to Gross
Book Value
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|
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62.1%
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Weighted average
interest rate - as at period end (3)
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2.47%
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Weighted average loan
term to maturity
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2.56 years
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Q2-2021
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Forecast
Q2-2021
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YTD-2021(6)
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Forecast(7)
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Summary of
Financial Information
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Revenue from property
operations
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$
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3,273
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$
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3,310
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$
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3,308
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$
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3,345
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Property operating
costs
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$
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(817)
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$
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(812)
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$
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(826)
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$
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(821)
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Property taxes
(4)
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$
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(378)
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$
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(377)
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$
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(382)
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$
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(381)
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Adjusted Income from
operations / NOI
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$
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2,078
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$
|
2,121
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$
|
2,100
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$
|
2,143
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Fund and trust
expenses
|
$
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(280)
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$
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(259)
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$
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(283)
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$
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(262)
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Finance
costs
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$
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(1,025)
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$
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(898)
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$
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(1,036)
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$
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(909)
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Distributions to
Unitholders
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$
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(869)
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$
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(863)
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$
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(869)
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$
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(863)
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Unrealized foreign
exchange gain
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$
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24
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$
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-
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$
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29
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$
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-
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Unrealized foreign
exchange gain
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$
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(8)
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$
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-
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$
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(8)
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$
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-
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Deferred income
taxes
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$
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(537)
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$
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(338)
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$
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(541)
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$
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(342)
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Net income and
comprehensive income
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$
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(617)
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$
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(237)
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$
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(608)
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$
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(233)
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Funds from operations
("FFO")
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$
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881
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$
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964
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$
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889
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$
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972
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FFO per Unit - basic
and diluted
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$
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0.08
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$
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0.09
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$
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0.08
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$
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0.09
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Adjusted funds from
operations ("AFFO")
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$
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953
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$
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1,022
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$
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963
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$
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1,032
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AFFO per Unit - basic
and diluted
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$
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0.09
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$
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0.09
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$
|
0.09
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$
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0.09
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Weighted average
interest rate - average during period (5)
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2.44%
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2.49%
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2.44%
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2.49%
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Interest coverage
ratio
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2.28 x
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2.36 x
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2.27 x
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2.36 x
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Indebtedness coverage
ratio
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2.28 x
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2.36 x
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2.27 x
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2.36 x
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FFO payout
ratio
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98.7%
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89.5%
|
97.8%
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88.8%
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AFFO payout
ratio
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91.2%
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84.5%
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90.3%
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83.7%
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Weighted Average
Units Outstanding (000s) - basic and diluted
|
10,902
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10,902
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10,902
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10,902
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(1)
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The Fund commenced
operations following the acquisition of the Fund's properties on
March 31, 2021.
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(2)
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Economic occupancy
for Q2-2021.
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(3)
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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.
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(4)
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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.
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(5)
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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.
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(6)
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Figures represent the
actual results of the Initial Reporting Period.
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(7)
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Figures represent the
YTD-2021 Forecast adjusted for the Initial Reporting
Period.
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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:
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Q2-2021
|
YTD-2021
|
Cash provided by
operating activities
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$
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2,237
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$
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1,912
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Less: interest paid
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(787)
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(796)
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Cash provided by
operating activities - including interest paid
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$
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1,450
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$
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1,116
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Add /
(Deduct):
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Change in non-cash
operating working capital
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(665)
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(654)
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Change in restricted
cash
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218
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551
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Sustaining capital
expenditures and suite renovation reserves
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(50)
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(50)
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AFFO
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$
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953
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$
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963
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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