/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES./
TORONTO, May 10, 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
March 31, 2022 ("Q1-2022"). Certain
comparative figures are included for the period from January 8, 2021 (date of formation) to
March 31, 2021 ("Q1-2021").
All amounts in this press release are in thousands of
United States ("U.S.") dollars
except for average monthly rent ("AMR") or unless otherwise stated.
All references to "C$" are to Canadian dollars.
"We are pleased to announce another
quarter of strong operating results for Q1-2022 with the Fund
achieving annualized rent growth of 8.8% and strong occupancy of
94.5%," commented Evan Kirsh, the
Fund's President. "The Fund continued to achieve rent growth in
excess of 10% on new and renewal leases during April 2022, positioning the Fund to take
advantage of favorable market conditions."
Q1-2022 HIGHLIGHTS
- During Q1-2022, the Fund recorded a fair value gain on its
properties of $12,648, contributing
to the cumulative $62,092 or 32.3%
increase over the aggregate purchase price since the properties
were acquired by the Fund on March 31,
2021. The fair value gain during Q1-2022 was driven by net
operating income ("NOI") growth and capitalization rate compression
from strong demand in the investment market for multi-family
properties across the primary markets in which the Fund
operates.
- Subsequent to March 31, 2022, the
Fund completed the refinancing of the loan payable secured by
Hudson at East ("Hudson") which
generated net proceeds of $26,623
reflecting the significant increase in the fair value of
Hudson, which along with cash on
hand in the Fund was used to acquire Summermill at Falls River
("Summermill"), a 320-suite multi-family property located in
Raleigh, North Carolina (see
"Subsequent Events").
- Revenue from property operations and NOI for Q1-2022 were
$3,453 and $2,295 (Q1-2021 - $35 and $22),
respectively, representing a $3,418
and $2,273 increase relative to
Q1-2021. The significant increases are primarily due to the
difference in the Fund's days of operation between Q1-2022 and
Q1-2021, with Q1-2021 only having one day of operations given its
initial public offering was completed on March 31, 2021 (Q1-2022 - 90 days).
- Significant increases in rent growth continued during Q1-2022
with the Fund achieving annualized rent growth of 8.8% and year
over year rent growth of 8.1%. These increases were driven by
continued growth in demand for multi-family suites due to the
economic strength shown in the U.S. and the primary markets in
which the Fund operates following the downturn created by
coronavirus (SARS – CoV2) and its variants ("COVID-19").
- The Fund achieved occupancy of 94.5% for Q1-2022, ahead of
Q1-2021 and the three months ended December
31, 2021 by 120 and 90 basis points, respectively,
positioning the Fund well to take advantage of favorable market
conditions as the economic recovery in the U.S. continues.
- As at May 9, 2022, the Fund had
collected 98.9% of rents for Q1-2022, with further amounts expected
to be collected in future periods, demonstrating the Fund's strong
tenant profile.
- Net income for Q1-2022 was $8,820
(Q1-2021 - $9) representing a
$8,811 increase relative to Q1-2021,
primarily due to the difference in days of operating activity
between Q1-2022 and Q1-2021 as well as the fair value gain on
investment properties described above.
- Adjusted funds from operations ("AFFO") for Q1-2022 was
$1,158 or $1,148 ahead of Q1-2021, primarily due to the
difference in days of operating activity between Q1-2022 and
Q1-2021.
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 and fourth COVID-19 dose by the U.S. Food and Drug
Administration to help further advance immunization efforts in
preventing the spread of COVID-19. However, there is a risk that
delays in the timely administration of vaccination programs,
changing strains of the virus, including the occurrence of new
variants of COVID-19, or reluctance to receive vaccinations could
prolong the impacts of COVID-19 and have the potential to cause
further adverse economic conditions. According to the U.S.
Department of Labor, unemployment rates for March 2022 declined to 3.6% (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 Q1-2022 under the Fund's profile, which is available
on www.sedar.com.
FINANCIAL CONDITION AND OPERATING
RESULTS
Highlights of the financial and operating performance of the
Fund as at March 31, 2022 and for
Q1-2022, including a comparison to December
31, 2021 and Q1-2021 are provided below:
|
March 31,
2022
|
December 31,
2021
|
Operational
Information (1)
|
|
|
Number of
properties
|
2
|
2
|
Total suites
|
|
675
|
675
|
Economic occupancy
(2)
|
94.5%
|
93.6%
|
AMR (in actual
dollars)
|
$
|
1,652
|
$
|
1,617
|
AMR per square foot (in
actual dollars)
|
$
|
1.70
|
$
|
1.67
|
Summary of Financial
Information
|
|
|
Gross book
value
|
$
|
268,084
|
$
|
255,200
|
Indebtedness
|
$
|
131,063
|
$
|
131,063
|
Indebtedness to gross
book value
|
48.9%
|
51.4%
|
Weighted average
interest rate - as at period end (3)
|
2.74%
|
2.49%
|
Weighted average loan
term to maturity
|
4.65 years
|
4.86 years
|
|
Q1-2022
|
Q1-2021 (7)
|
Summarized Income
Statement
|
|
|
|
|
Revenue from property
operations
|
$
|
3,453
|
$
|
35
|
Property operating
costs
|
(791)
|
(9)
|
Property taxes
(4)
|
(367)
|
(4)
|
Adjusted income from
operations / NOI
|
$
|
2,295
|
$
|
22
|
Fund and trust
expenses
|
(265)
|
(3)
|
Finance costs
(including non-cash items) (5)
|
556
|
(11)
|
Distributions to
unitholders of the Fund ("Unitholders")
|
(844)
|
-
|
Distributions to
preferred shareholders
|
(4)
|
-
|
Unrealized foreign
exchange gain
|
1
|
5
|
Realized foreign
exchange loss
|
(2)
|
-
|
Fair value adjustment
on investment properties
|
12,648
|
-
|
Provision for carried
interest
|
(3,102)
|
-
|
Deferred income
taxes
|
(2,463)
|
(4)
|
Net income and
comprehensive income
|
$
|
8,820
|
$
|
9
|
Other Selected
Financial Information
|
|
|
Funds from operations
("FFO")
|
$
|
1,133
|
$
|
8
|
FFO per unit of the
Fund ("Unit") - basic and diluted
|
$
|
0.10
|
$
|
-
|
AFFO
|
|
|
$
|
1,158
|
$
|
10
|
AFFO per Unit - basic
and diluted
|
|
|
$
|
0.11
|
$
|
-
|
Weighted average
interest rate - average during period (6)
|
|
|
2.54%
|
2.44%
|
Interest coverage
ratio
|
|
|
2.47 x
|
2.08 x
|
Indebtedness coverage
ratio
|
|
|
2.47 x
|
2.08 x
|
Distributions to
Unitholders
|
|
|
$
|
844
|
$
|
-
|
Weighted Average Units
Outstanding (000s) - basic/diluted
|
|
|
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
Q1-2022 and the three months ended December 31, 2021.
|
(3)
|
The weighted average
interest rate on loans payable is presented as at March 31, 2022
reflecting the prevailing index rate, U.S. 30-day London Interbank
Offered Rate ("LIBOR") or U.S. 30-day New York Federal Reserve
Secured Overnight Financing Rate ("NY SOFR"), as applicable to each
loan, as at that date. The figures presented do not include the
impact of the refinancing of the loan payable at Hudson.
|
(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 Q1-2022 and Q1-2021.
|
(5)
|
Finance costs include
interest expense on loans payable, non-cash amortization of
deferred financing costs, as well as fair value changes in
derivative financial instruments.
|
(6)
|
The weighted average
interest rate on loans payable presented reflects the average
prevailing index rate, LIBOR or NY SOFR, as applicable to each of
the loans payable, throughout each period presented. The figures
presented do not include the impact of the refinancing of the loan
payable at Hudson.
|
(7)
|
Figures represent one
day of operating activity for the Fund on March 31,
2021.
|
SUBSEQUENT EVENTS
(a) Hudson refinancing:
On April 20, 2022, the Fund
entered into a new loan payable secured by Hudson for $67,000, bearing interest at the one-month term
Secured Overnight Financing Rate ("Term SOFR") + 2.70%, subject to
a Term SOFR floor of 0.10%, which requires interest-only payments
until maturity in April 2025 ("Hudson
Refinancing"). The refinancing of the Hudson loan payable generated net proceeds of
approximately $26,623 after costs
incurred and the repayment of the previously outstanding loan
payable, which was used to fund a portion of the acquisition of
Summermill.
(b) Unsecured loan:
On April 25, 2022, the Fund
entered into an unsecured loan ("Unsecured Loan") amounting to
$5,000, bearing interest-only
payments at 9% per annum and has a one-year term plus a six-month
extension option. The proceeds from the Unsecured Loan are expected
to be used for working capital purposes.
(c) Acquisition of Summermill property:
On April 27, 2022, the Fund
acquired Summermill, a 320-suite multi-family property located in
Raleigh, North Carolina for
$106,000. The acquisition was
financed using cash on hand in the Fund (including cash from the
Hudson Refinancing), deposits made to date (including those
deposits included in prepaid expenses and other assets as at
March 31, 2022) as well as a first
mortgage loan payable of $76,500,
with an additional $6,395 available
to draw on to fund future capital expenditures at the property. The
first mortgage loan payable carries a three-year term and requires
interest-only payments until maturity at Term SOFR + 2.95%, subject
to a Term SOFR floor of 0.10%. In connection with the Summermill
loan payable, the Fund also entered into an interest rate cap
agreement which effectively provides a maximum interest rate of
5.95% for the first 18 months of the loan's term.
NON-IFRS FINANCIAL MEASURES AND
RECONCILIATIONS
The Fund's consolidated financial statements are prepared in
accordance with International Financial Reporting Standards
("IFRS"). Certain terms that may be used in this press release
including AFFO, AMR, economic occupancy, FFO, gross book value,
indebtedness, indebtedness coverage ratio, indebtedness to gross
book value, interest coverage ratio and NOI (collectively, the
"Non-IFRS Measures") as well as other measures discussed elsewhere
in this press release, do not have a standardized definition
prescribed by IFRS and are, therefore, unlikely to be comparable to
similar measures presented by other reporting issuers. 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. 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
Q1-2022 and are available on the Fund's profile on SEDAR at
www.sedar.com.
A reconciliation of the Fund's interest coverage ratio and
indebtedness coverage ratio are provided below:
Interest and
indebtedness coverage ratios
|
Q1-2022
|
Q1-2021 (2)
|
Net income and
comprehensive income
|
$
|
8,820
|
$
|
9
|
|
(Deduct) / Add:
non-cash or one-time items and distributions
(1)
|
(7,616)
|
1
|
Adjusted net income and
comprehensive income
|
$
|
1,204
|
$
|
10
|
Interest coverage ratio
(3)
|
2.47
x
|
2.08
x
|
Indebtedness coverage
ratio (4)
|
2.47
x
|
2.08
x
|
(1)
|
Comprised of unreailzed
foreign exchange gain, deferred income taxes, amortization of
financing costs, fair value adjustment on derivative instruments,
fair value adjustment on investment properties, and provision for
carried interest.
|
(2)
|
Figures represent one
day of operating activity for the Fund on March 31,
2021.
|
(3)
|
Interest coverage ratio
is calculated as adjusted net income and comprehensive income plus
interest expense divided by interest expense.
|
(4)
|
Indebtedness coverage
ratio is calculated as adjusted net income and comprehensive income
plus interest expense divided by interest expense and mandatory
principal payments on the Fund's loans payable.
|
CASH PROVIDED BY OPERATING
ACTIVITIES RECONCILIATION TO FFO and AFFO
The Fund was formed as a "closed-end" limited partnership with
an initial term of three years, a targeted yield of 4.0% and a
targeted minimum 11% pre-tax investor internal rate of return
across all classes of Units.
AFFO and AFFO per Unit for Q1-2022 were $1,158 and $0.11,
respectively (Q1-2021 - $10 and
$nil), representing an increase in AFFO of $1,148, primarily due to Q1-2022 reflecting the
operations for the three months from January
1, 2022 to March 31, 2022 for
the Fund's properties in comparison to Q1-2021 reflecting one day
of operating activity for the Fund's properties.
A reconciliation of the Fund's cash provided by operating
activities determined in accordance with IFRS to FFO and AFFO for
Q1-2022 and Q1-2021 are provided below:
|
|
Q1-2022
|
Q1-2021
|
Cash provided by
(used in) operating activities
|
|
$
|
267
|
$
|
(325)
|
Less: interest costs
|
|
(820)
|
(9)
|
Cash used in
operating activities - including interest costs
|
|
$
|
(553)
|
$
|
(334)
|
Add /
(Deduct):
|
|
|
|
Change in non-cash
operating working capital
|
|
1,616
|
11
|
Change in restricted
cash
|
|
145
|
333
|
Amortization of
financing costs
|
|
(75)
|
(2)
|
FFO
|
|
$
|
1,133
|
$
|
8
|
Add /
(Deduct):
|
|
|
|
Amortization of
financing costs
|
|
75
|
2
|
Sustaining capital
expenditures and suite renovation reserves
|
|
(50)
|
-
|
AFFO
|
|
$
|
1,158
|
$
|
10
|
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 Fund's
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, financing, performance,
achievements, events, prospects or opportunities for the Fund or
the real estate industry and may include statements regarding the
financial position, business strategy, budgets, litigation,
projected costs, capital expenditures, financial results, occupancy
levels, AMR, taxes, and plans and objectives of or involving the
Fund. Particularly, matters described in "COVID-19" and "Future
Outlook" are forward-looking information. In some cases,
forward-looking information can be identified by terms such as
"may", "might", "will", "could", "should", "would", "occur",
"expect", "plan", "anticipate", "believe", "intend", "seek", "aim",
"estimate", "target", "goal", "project", "predict", "forecast",
"potential", "continue", "likely", "schedule", or the negative
thereof or other similar expressions concerning matters that are
not historical facts.
Forward-looking statements involve known and unknown risks and
uncertainties, which may be general or specific and which give rise
to the possibility that expectations, forecasts, predictions,
projections or conclusions will not prove to be accurate, that
assumptions may not be correct and that objectives, strategic goals
and priorities may not be achieved. Those risks and uncertainties
include: the impact of COVID-19 on the Fund's 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
Fund's properties or the Fund's legal entities; the applicability
of any government regulation concerning the Fund's tenants or rents
as a result of COVID-19 or otherwise; the extent and pace at which
any changes in interest rates that impact the Fund's weighted
average interest rate may occur; the use of the proceeds of the
Unsecured Loan; and the availability of debt financing for any
future financing requirements of the Fund. A variety of factors,
many of which are beyond the Fund's control, affect the operations,
performance and results of the Fund and its business, and could
cause actual results to differ materially from current expectations
of estimated or anticipated events or results.
Information contained in forward-looking information is based
upon certain material assumptions that were applied in drawing a
conclusion or making a forecast or projection, including
management's perceptions of historical trends, current conditions
and expected future developments, as well as other considerations
that are believed to be appropriate in the circumstances, including
the following: the impact of COVID-19 on the 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 use of the proceeds of the
Unsecured Loan; the availability of properties for potential future
acquisition, if any, and the price at which such properties may be
acquired; the price at which the Fund's properties may be disposed
and the timing thereof; closing and other transaction costs in
connection with the acquisition and disposition of the Fund's
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 Fund's properties;
the ability of Starlight Investments US AM Group LP or its
affiliates (the "Manager") to manage and operate the Fund's
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 unaudited condensed consolidated interim
financial statements and MD&A for the three months ended
March 31, 2022 and any other
information related to the Fund, please visit www.sedar.com.
Further details regarding the Fund's unit performance and
distributions, market conditions where the Fund's properties are
located, performance by the Fund's properties and a capital
investment update are also available in the Fund's May 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