/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES./
TORONTO, Nov. 23, 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 September 30,
2021 ("Q3-2021") and the period from January 8, 2021 (date of formation) to
September 30, 2021 ("YTD-2021"),
which includes 184 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.
"We are pleased with the strong operating performance of the
Fund including significant improvements in the Fund's key
performance indicators," commented Evan
Kirsh, the Fund's President. "The Fund reported NOI ahead of
Forecast by 4.7%, occupancy of 95.7% and annualized rent growth of
12.2%, as strong demand for leasing continued at the Fund's
properties. The Fund continues to be well positioned to take
advantage of favorable market conditions as the economic recovery
continues."
Q3-2021 HIGHLIGHTS
- During Q3-2021, the Fund recorded a fair value gain on
investment properties of $37,890,
contributing to the cumulative 20.0% increase over the aggregate
purchase price of Montane and Hudson at East (the "Properties").
The fair value gain during Q3-2021 was primarily driven by
continued capitalization rate compression from increasing demand in
the investment market for multi-family properties across the
primary markets of the Fund and net operating income ("NOI")
growth.
- Revenue from property operations and NOI for Q3-2021 were
$3,473 and $2,244, respectively, representing a 4.2% and
4.7% increase relative to the financial forecast included in the
Fund's prospectus dated March 19,
2021 (the "Forecast") driven by strong rent growth and cost
management.
- Significant increases in rent growth and occupancy were
achieved during Q3-2021 with the Fund reporting 12.2% annualized
rent growth and economic occupancy of 95.7%, representing increases
of 8.8% and 0.8% above the three months ended June 30, 2021, respectively. These significant
increases were driven by growth in demand for multi-family suites
as well as the continued economic recovery after the initial
downturn created by the outbreak of coronavirus (SARS – CoV2) and
its variants ("COVID-19") in the U.S. and the primary markets, as
defined below.
- As at November 22, 2021, the Fund
had collected 98.6% of rents for Q3-2021, with further amounts
expected to be collected in future periods.
- Adjusted funds from operations ("AFFO") for Q3-2021 was
$1,126 or 8.2% ahead of Forecast with
the Fund's AFFO payout ratio at 75.6%, lower than the forecasted
AFFO payout ratio of 82.0%, driven primarily by higher than
forecasted NOI at the Properties (see "Non-IFRS Financial
Measures").
- On July 19, 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 Canadian dollar funds. The contract was entered into to protect
against the potential impact of any weakening of the U.S. dollar on
a portion of the amount 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. Subsequent to September 30, 2021, the Fund entered into an
additional variable contract (see "Subsequent Events").
INITIAL REPORTING PERIOD HIGHLIGHTS
- The Fund completed the Offering on March
31, 2021 and raised gross subscription proceeds of
$85,408.
- The proceeds from the Offering 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 $4,344
(Forecast - $4,287), representing an
increase of $57 or 1.3% compared to
the Forecast, primarily due to higher than forecasted revenue at
Montane.
- AFFO for YTD-2021 was $2,088
(Forecast - $2,072) with the Fund's
AFFO payout ratio at 82.4%, lower than the forecasted AFFO payout
ratio of 82.9%, driven primarily by the higher than forecasted NOI
at the Properties.
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 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, including the current rise in the delta variant strain of
COVID-19, and 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 September 2021
declined to 4.8% (from a peak of approximately 15% in April 2020) with 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 are
included in the Fund Management's Discussion and Analysis in the
"COVID-19" and "Future Outlook" sections for Q3-2021 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 September 30, 2021 and for
Q3-2021 and the Initial Reporting Period is provided below:
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As at
September 30,
2021
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Operational
Information (1)
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|
|
|
|
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Number of
properties
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|
|
|
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2
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Total
suites
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|
|
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675
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Economic occupancy
(2)
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95.7%
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AMR (in actual
dollars)
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|
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$
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1,588
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AMR per square foot
(in actual dollars)
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|
|
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|
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$
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1.63
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Summary of
Financial Information
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Gross Book
Value
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|
|
|
|
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$
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243,190
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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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|
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52.4%
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Weighted average
interest rate - as at period end (3)
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2.48%
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Weighted average loan
term to maturity
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2.30 years
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Q3-2021
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Forecast
Q3-2021
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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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|
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|
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Revenue from property
operations
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$
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3,473
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$
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3,333
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$
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6,781
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$
|
6,678
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Property operating
costs
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$
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(851)
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$
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(812)
|
$
|
(1,677)
|
$
|
(1,633)
|
Property taxes
(4)
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$
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(378)
|
$
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(377)
|
$
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(760)
|
$
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(758)
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Adjusted Income from
operations / NOI
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$
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2,244
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$
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2,144
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$
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4,344
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$
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4,287
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Fund and trust
expenses
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$
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(271)
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$
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(259)
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$
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(554)
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$
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(521)
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Finance
costs
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$
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(930)
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$
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(900)
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$
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(1,966)
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$
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(1,809)
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Other income and
expenses (8)
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$
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19,307
|
$
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(1,196)
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$
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17,918
|
$
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(2,401)
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Net income (loss) and
comprehensive income (loss)
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$
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20,350
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$
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(211)
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$
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19,742
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$
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(444)
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Funds from operations
("FFO")
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$
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1,053
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$
|
985
|
$
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1,942
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$
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1,957
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FFO per Unit - basic
and diluted
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$
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0.10
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$
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0.10
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$
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0.18
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$
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0.18
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AFFO
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$
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1,126
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$
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1,041
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$
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2,088
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$
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2,072
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AFFO per Unit - basic
and diluted
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$
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0.10
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$
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0.10
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$
|
0.19
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$
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0.19
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Weighted average
interest rate - average during period (5)
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2.48%
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2.48%
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2.46%
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2.49%
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Interest coverage
ratio
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2.46 x
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2.38 x
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2.37 x
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|
2.36 x
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Indebtedness coverage
ratio
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2.46 x
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2.38 x
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2.37 x
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2.36 x
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Distributions to
Unitholders
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$
|
851
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$
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854
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$
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1,720
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$
|
1,717
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FFO payout
ratio
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80.8%
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|
86.7%
|
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88.6%
|
|
87.7%
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AFFO payout
ratio
|
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75.6%
|
|
82.0%
|
|
82.4%
|
|
82.9%
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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 Q3-2021.
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(3)
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The weighted average
interest rate on loans payable is presented as at September 30,
2021 reflecting the prevailing index rate, U.S. 30-day London
Interbank Offered Rate ("LIBOR") or Secured Overnight Financing
Rate ("SOFR"), as applicable to each loan, as at that
date.
|
(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 Q3-2021 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)
|
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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(8)
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Includes
distributions to unitholders of the Fund, dividends to preferred
shareholders, unrealized foreign exchange gain (loss), realized
foreign exchange gain, fair value adjustment of investment
properties, provision for carried interest and deferred income
taxes.
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CASH PROVIDED BY OPERATING ACTIVITIES RECONCILIATION TO
AFFO
AFFO and AFFO per unit for Q3-2021 were $1,126 and $0.10,
respectively (Forecast - $1,041 and
$0.10), representing an increase in
AFFO of $85 or 8.2%, primarily due to
higher than forecasted NOI at the Properties.
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 provided by operating activities
determined in accordance with International Financial Reporting
Standards ("IFRS") to AFFO for Q3-2021 and YTD-2021 is provided
below:
|
Q3-2021
|
YTD-2021
|
Cash provided by
operating activities
|
$
|
1,833
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$
|
3,745
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Less: interest paid
|
(803)
|
(1,599)
|
Cash provided by
operating activities - including interest paid
|
$
|
1,030
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$
|
2,146
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Add /
(Deduct):
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Change in non-cash
operating working capital
|
(361)
|
(1,015)
|
Change in restricted
cash
|
508
|
1,059
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Sustaining capital
expenditures and suite renovation reserves
|
(51)
|
(102)
|
AFFO
|
$
|
1,126
|
$
|
2,088
|
SUBSEQUENT EVENTS
On October 25, 2021, the Fund
refinanced the loan payable at Montane for net proceeds of
approximately $3,068. After
completion of the refinancing, the property's loan payable is
$92,000, bears interest at SOFR +
2.43% and requires interest-only payments until October 2024 followed by blended interest and
principal payments thereafter until maturity in November 2028.
On November 19, 2021, the Fund
entered into a six-month variable rate collar contract to establish
a guaranteed monthly exchange rate between C$1.2500 and C$1.2920 for the conversion of U.S. dollar funds
to Canadian dollar funds for the monthly settlements taking place
between February and August 2022. The
contract was entered into to protect against the potential impact
of any weakening of the U.S. dollar on a portion of the amount
required to pay the Fund's monthly Canadian dollar distributions
during those periods.
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 Q3-2021
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