15.08.2022 20:24

STARLIGHT WESTERN CANADA MULTI-FAMILY (NO. 2) FUND ANNOUNCES SOLID Q2-2022 OPERATING RESULTS INCLUDING ITS SEVENTH PROPERTY ACQUISITION

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TORONTO, Aug. 15, 2022 /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 June 30, 2022 ("Q2-2022") and six months ended June 30, 2022 ("YTD-2022"), which includes 128 days of operating activity following the closing of the Fund's initial public offering on February 22, 2022 (the "Offering") through June 30, 2022 (the "Initial Reporting Period").

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

"We are pleased to announce the Fund's strong Q2-2022 operating performance with net operating income in line with the Fund's forecast," commented Daniel Drimmer, the Fund's President and Chief Executive Officer. "The Fund continues to focus on optimizing operating results for its existing portfolio while deploying the remaining proceeds from the Offering by actively pursuing potential acquisition opportunities for multi-family properties in the Fund's target markets to complement its existing portfolio."

ACQUISITION AND LIQUIDITY HIGHLIGHTS

  • Subsequent to the Offering, on February 23, 2022, the Fund completed the acquisition of five properties in Nanaimo, Langford and Vernon (the "Initial Properties"), which included a total of 495 multi-family suites located on Vancouver Island and the mainland of the Province of British Columbia.
  • On March 1, 2022 and June 7, 2022, the Fund acquired its sixth and seventh properties, adding 166 multi-family suites in Langford, British Columbia and 57 multi-family suites in Langley, British Columbia, respectively (collectively, the "Non-Forecast Properties")
  • During Q2-2022, the Fund entered into an agreement to acquire an eighth property, which on completion would add an additional 120 multi-family suites in Nanaimo, British Columbia.
  • As at June 30, 2022, the Fund had approximately $41,883 of available liquidity, which included cash remaining from the Offering to be used primarily to acquire additional multi-family properties.

Q2-2022 HIGHLIGHTS

  • One of the Initial Properties in Nanaimo achieved LEED® BD+C Gold certification on March 10, 2022. LEED® (@Leadership in Energy and Environmental Design) is an internationally recognized system that plays a critical role in addressing climate change in development and design. LEED-certified buildings save residents' money, improve efficiency, lower carbon emissions, and create healthier places for people to live.
  • Revenue from property operations for Q2-2022 was $3,535, representing an increase of $813 or 29.9% compared to the financial forecast included in the Fund's prospectus dated January 27, 2022 (the "Forecast"), primarily as a result of the Non-Forecast Properties not being included in the Forecast. For the Initial Properties, revenue was slightly below the Forecast by $53 or 1.9%, primarily as a result of lower than Forecast occupancy, partially offset by increases in AMR and ancillary income.
  • Total portfolio net operating income ("NOI") for Q2-2022 was $2,507, representing an increase of $586 or 30.5% compared to Forecast, primarily as a result of the Non-Forecast Properties not being included in the Forecast. For the Initial Properties, NOI was $60 or 3.1% below the Forecast primarily driven by lower than forecasted revenue from property operations and higher than forecasted property operating costs, partially offset by lower than forecasted property taxes.
  • As at August 15, 2022, the Fund had collected approximately 99.0% of rents for Q2-2022, with further amounts expected to be collected in future periods, demonstrating the Fund's strong resident base and operating performance.
  • Net loss and comprehensive loss attributable to unitholders of the Fund ("Unitholders") for Q2-2022 was $575, representing a decline of $643 relative to Forecast primarily as a result of higher distributions to Unitholders due to the Fund electing to pay a 3.1% annualized distribution despite 100% of the Offering not yet being fully deployed. Net loss and comprehensive loss attributable to Unitholders would have been $186 for Q2-2022, assuming the Fund had paid distributions based on actual equity deployed.
  • Adjusted funds from operations ("AFFO") for Q2-2022 was $633, representing a decrease of $130 or 17% relative to the Forecast primarily due to higher than forecasted finance costs and fund and trust expenses attributable to Non-Forecast Properties not being included in the Forecast, partially offset by higher than forecasted NOI as a result of Non-Forecast Properties, which were not included in the Forecast.

ADDITIONAL YTD-2022 HIGHLIGHTS

  • The Fund completed the Offering on February 22, 2022 and raised gross subscription proceeds of $130,000, achieving the maximum offering allowable as set out in the Fund's prospectus.
  • Revenue from property operations was $4,946, representing an increase of $1,113 or 29.0% compared to the Forecast, primarily as a result of the Non-Forecast Properties not being included in the Forecast. For the Initial Properties, revenue was slightly below the Forecast by $27 or 0.7%, primarily as a result of lower than forecasted occupancy, partially offset by higher AMR and ancillary income.
  • Total portfolio NOI was $3,617, representing an increase of $921 or 34.2% compared to Forecast, primarily as a result of the Non-Forecast Properties not being included in the Forecast. For the Initial Properties, NOI was $52 or 1.9% higher than the Forecast primarily driven by lower than forecasted property taxes, partially offset by higher property operating costs and lower revenue from operations.
  • Net loss and comprehensive loss attributable to Unitholders was $661, representing a decline of $741 relative to the Forecast primarily as a result of higher distributions to Unitholders due to the Fund electing to pay a 3.1% annualized distribution during the Initial Reporting Period despite 100% of the Offering proceeds not yet being fully deployed. Net loss and comprehensive loss attributable to Unitholders would have been $97 for YTD-2022, assuming the Fund had paid distributions based on actual equity deployed.
  • AFFO for YTD-2022 was $1,032, representing a decrease of $28 or 2.6% relative to the Forecast primarily due to higher than forecasted finance costs and fund and trust expenses attributable to Non-Forecast Properties not being included in the Forecast, partially offset by higher than forecasted NOI as a result of Non-Forecast Properties, which were not included in the Forecast.

FUTURE OUTLOOK AND COVID-19 IMPACT

On March 11, 2020, the World Health Organization characterized the outbreak of the coronavirus (SARS – CoV2) and its variants ("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 its properties (the "Properties") to combat the spread of COVID-19, assist residents where needed and implement other measures to minimize business interruption.

The Fund intends to actively monitor any continued impact that 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 Canada, but in the event the vaccination program across Canada and globally does not contain the spread of COVID-19 or if there are delays in the timely administration of further vaccines or shortages in the vaccine supply chain, 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 a further economic slowdown and increased volatility in financial markets. Although the Canadian Federal Government introduced monetary and fiscal interventions aimed at stabilizing the economy and devoted significant resources to a mass vaccination program, uncertainty remains as to the overall impact and timing of these interventions on the Canadian debt and equity markets as well as the economies of both Canada and the markets in which the Fund operates. In addition, these uncertain economic conditions resulting from COVID-19 may adversely impact the demand for residential housing.

During 2022, inflation concerns have contributed to a significant increase in interest rates with the Bank of Canada raising its target interest rate from 0.25% to 2.50% as at June 30, 2022. Additional target interest rate increases are anticipated in the second half of 2022. The increases in target interest rates typically lead to increases in borrowing costs related to variable rate debt. As at June 30, 2022, 28.8% of the Fund's debt was variable rate. Historically, investments in multi-family properties have provided an effective hedge against inflation given the short-term nature of lease terms, reflected in the higher AMR achieved at the Properties during Q2-2022. 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 yield of 3.0% to 4.0% across all classes of units of the Fund ("Units") despite potential periods of increasing 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.

Canada's unemployment rate decreased to 4.7% in June 2022, falling below pre-pandemic levels. Despite the Canadian economy's strong recovery from the pandemic, the war in Ukraine has added uncertainty to the global economic outlook. According to Statistics Canada, British Columbia gained approximately 86,800 jobs between June 2021 and June 2022. The unemployment rate in June 2022 was 4.5% in British Columbia including the Vancouver Island and Coast Region which are lower than the national average of 4.7%.

The primary markets in which the Fund operates, including Langford, Nanaimo, Vernon and Langley, possess attractive qualities such as some of the fastest growing populations in British Columbia with strong demographics of highly educated young professionals and families, diverse local job sectors, desirable locations with waterfront and mountain views as well as significant economic growth and a limited supply of multi-family suites creating an environment for continued demand for suites which drive occupancy and rent growth. The Fund believes it is well positioned to take advantage of these favourable conditions.

Further disclosures surrounding the impact of COVID-19 and the Fund's Future Outlook are included in the Fund's Management's Discussion and Analysis ("MD&A") in the "Future Outlook and COVID-19" section for Q2-2022 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 June 30, 2022, and for Q2-2022 and YTD-2022 are provided below:






As at June
30, 2022

Key Operational Information (1)





Number of properties




7

Total suites




718

Economic occupancy (2)




95.5 %

AMR (in actual dollars)




$        1,771

AMR per square foot (in actual dollars)




$          2.26

Summary of Financial Information





Gross book value




$     287,558

Indebtedness




$     207,801

Indebtedness to gross book value




72.3 %

Weighted average interest rate (3)




3.20 %

Weighted average  term to maturity




4.64 years


Q2-2022

Forecast
Q2-2022 (4)

YTD-2022

Forecast
YTD-2022 (4)

Summary of Financial Information





Revenue from property operations

$        3,535

$        2,722

$        4,946

$        3,833

Property operating costs

(756)

(504)

(981)

(718)

Property taxes

(272)

(297)

(348)

(419)

Income from rental operations / NOI

$        2,507

$        1,921

$        3,617

$        2,696

Net (loss) income and comprehensive (loss) income

$          (575)

$             68

$          (661)

$             80







Other Selected Financial Information





Funds from operations ("FFO")

$           424

$           602

$           754

$           833

FFO per Unit - basic and diluted

$          0.03

$          0.10

$          0.06

$          0.14

AFFO 

$           633

$           763

$        1,032

$        1,060

AFFO per Unit - basic and diluted

$          0.05

$          0.13

$          0.08

$          0.17

Weighted average interest rate

3.04 %

2.40 %

2.95 %

2.40 %

Interest coverage ratio

1.53x

1.9x

1.62x

1.88x

Indebtedness coverage ratio

1.05x

1.09x

1.18x

1.18x

Weighted average Units outstanding (000s) - basic and diluted

13,000

6,100

13,000

6,100

(1) The Fund commenced operations following the acquisition of the Initial Properties on February 23, 2022 and subsequently acquired two additional multi-family properties on March 1, 2022 and June 7, 2022.

(2) Economic occupancy for the Initial Reporting Period.

(3) The weighted average interest rate is presented as at June 30, 2022.



(4) Forecast Q2-2022 and Forecast YTD-2022 only include results related to the Initial Properties.

 

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 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 in this press release, do not have a standardized definition prescribed by International Accounting Standards Board 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. FFO payout ratio adjusted for equity deployed is calculated by taking distributions declared, adjusted for the actual equity deployed during each applicable reporting period, and dividing by FFO. AFFO payout ratio adjusted for equity deployed is calculated by taking distributions declared, adjusted for the actual equity deployed during each applicable reporting period, and dividing by AFFO. 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 Q2-2022 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

Q2-2022 

Forecast
Q2-2022 (1)

YTD-2022

Forecast
YTD-2022 (1)

Net (loss) income and comprehensive (loss) income

$            (575)

$              68

$            (661)

$                80


Add: non-cash or one-time items and distributions (2)

1,308

707

1,837

997

Adjusted net income and comprehensive income


$             733

$            775

$          1,176

$          1,077

Interest coverage ratio (3)

 1.53x 

 1.9x 

 1.62x 

 1.88x 

Indebtedness coverage ratio (4)

 1.05x 

 1.09x 

 1.18x 

 1.18x 

(1) Forecast Q2-2022 and Forecast YTD-2022 only include results related to the Initial Properties.

(2) Non-cash or one-time items and distributions consist of amortization of financing costs and other finance costs.

(3) Interest coverage ratio is calculated as adjusted net income (loss) and comprehensive income (loss) plus interest expense, divided by interest expense.

(4) Indebtedness coverage ratio is calculated as adjusted net income (loss) and comprehensive income (loss) plus interest expense, divided by interest expense and mandatory principal payments on the Fund's loans payable.

 

CASH USED IN OPERATING ACTIVITIES RECONCILIATION TO AFFO

The Fund was formed as a "closed-ended fund" with an initial term of three years, a targeted yield of 3.0% to 4.0% and a targeted minimum 12% pre-tax investor internal rate of return across all Units.

Basic and diluted AFFO and AFFO per Unit for Q2-2022 were $633 and $0.05, respectively (Forecast - $763 and $0.13), representing a decrease in AFFO of $130 or 17.0% primarily due to higher than forecasted finance costs and fund and trust expenses attributable to the Non-Forecast Properties not being included in the Forecast.

A reconciliation of the Fund's cash used in operating activities determined in accordance with IFRS to FFO and AFFO for Q2-2022 and YTD-2022 is provided below:



Q2-2022

YTD-2022

Cash used in operating activities


$                      (1,306)

$                      (1,420)

    Less: interest and finance costs


(1,475)

(2,003)

Cash used in operating activities - including interest and finance costs


$                      (2,781)

$                      (3,423)

Add / (Deduct):




Change in non-cash operating working capital


2,972

3,371

Change in restricted cash


458

1,107

Amortization of financing costs


(225)

(301)

FFO


$                          424

$                          754

Add / (Deduct):




Amortization of financing costs


225

301

Sustaining capital expenditures and suite renovation reserves 


(16)

(23)

AFFO 


$                          633

$                       1,032

 

A reconciliation of the Fund's FFO payout ratio and AFFO payout ratio adjusted for equity deployed are provided below:

Adjusted distributions 

Q2-2022 (1)


YTD-2022 (1)



Cash paid for acquisition of Properties (4)

$         6,160


$        78,154



Adjusted distributions on equity deployed (5)

$            610


$             851


FFO and AFFO payout ratios adjusted for equity deployed

Q2-2022 (1)

Forecast
Q2-2022 (2)

YTD-2022 (1)

Forecast
YTD-2022 (3)


FFO payout ratio adjusted for equity deployed

144.0 %

88.7 %

112.9 %

90.4 %


AFFO payout ratio adjusted for equity deployed

96.4 %

70.0 %

82.5 %

71.0 %

(1)

Figures represent the actual results of Q2-2022 and YTD-2022.





(2)

Forecast for Q2-2022 includes the Initial Properties only.



(3)

Forecast for YTD-2022 is adjusted for the Initial Reporting Period and for the Initial Properties only.

(4)

Figures represent the cash paid for the acquisitions of Properties as well as costs incurred for the Offering as reported in the condensed consolidated interim financial statements of the Fund for Q2-2022 and YTD-2022.

(5)

The Fund elected to pay the 3.1% annualized targeted distribution on the gross subscription proceeds from the Offering during Q2-2022 and YTD-2022 despite the fact that 100% of the Offering proceeds had not yet been fully deployed. Adjusted distributions on equity deployed is calculated as a percentage of actual equity distributions over equity deployed during Q2-2022 and YTD-2022.

 

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 Properties, including the impact of COVID-19, inflation and interest rates 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, 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 "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; the impact of inflation; 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 ability of the Fund to deploy the remaining proceeds of the Offering; 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, and the availability of residential properties for acquisition; the extent and pace at which any changes in interest rates that impact the Fund's weighted average interest rate may occur; the availability of debt financing; and the price at which such properties may be acquired. 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 ability to deploy the remaining proceeds from the Offering; 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; 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 residential real estate properties; the availability of residential properties for acquisition and the price at which such properties may be acquired; the ability of the Fund to benefit from any asset management initiatives the Fund conducts 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 acquisition and disposition of the Properties; the impact of inflation and availability of mortgage financing and current 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 the Manager to manage and operate the Properties; the global and North American economic environment; 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 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 British Columbia. The Fund has interests in and operates a portfolio comprising interests in 718 income producing multi-family suites located in British Columbia.

For the Fund's complete consolidated interim financial statements and MD&A for the three months ended June 30, 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 Properties are located, performance by the Properties and a capital investment update are also available in the Fund's June 2022 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

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