TORONTO, May 14, 2024 /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 March 31, 2024 ("Q1-2024"). Certain comparative figures are included for the three months ended March 31, 2023 ("Q1-2023").

All amounts in this press release are in thousands of Canadian dollars except for average monthly rent ("AMR")¹  or unless otherwise stated.

"We are pleased to announce another quarter of strong operating results with the Starlight Western Canada Multi-Family (No. 2) Fund achieving year-over-year average monthly rent growth of 4.1%," commented Daniel Drimmer, Chief Executive Officer. "Management's singular focus is to increase net operating income at its properties through an active asset management strategy with the goal of maximizing the total return to investors."

Q1-2024 HIGHLIGHTS

• Subsequent to Q1-2024, the Fund's board of trustees (the "Board") approved an increase to the Fund's monthly pre-tax distribution per unit for all classes of units ("Units"), applicable to its unitholders ("Unitholders") of record as of May 31, 2024 and payable on June 15, 2024 (see "Subsequent Events").
• During Q1-2024, the Fund recorded a fair value gain on the nine multi-family properties owned (the "Properties") of $8,108, a 13.9% increase over the aggregate purchase price since the Properties were acquired by the Fund. The fair value gain during Q1-2024 was entirely driven by net operating income ("NOI")¹ growth.
• During Q1-2024, the Fund received $1,851 related to incremental interest owing on historical bank balances from the Fund's corporate banking provider, a Canadian chartered bank, further enhancing its liquidity position.
• The Fund achieved approximately 4.1% AMR growth between Q1-2023 and Q1-2024, continuing to be driven by the sustained demand for multi-family suites due to the economic strength and increased immigration levels in Canada and in particular, the Vancouver Island and the mainland of the Province of British Columbia ("BC") (collectively, the "Primary Markets").
• The Fund achieved physical occupancy¹ of 96.0% during Q1-2024, which subsequently increased to 97.5% as at May 13, 2024.
• As at March 31, 2024, a total of 80.5% of the Fund's debt was fixed rate, which subsequently increased to 91.1% as the Fund entered into various financing arrangements with lenders (see "Subsequent Events"). As at March 31, 2024, the Fund's weighted average fixed interest rate was 2.8%.
• Revenue from property operations and NOI for Q1-2024 were $5,251 and $3,645 (Q1-2023 - $4,571 and $3,218), respectively, representing an increase of $680 and $427 relative to Q1-2023. These significant increases were primarily due to the difference in the number of Properties owned between Q1-2023 and Q1-2024.
• Same property NOI¹ for Q1-2024 was $3,275 (Q1-2023 - $3,218), representing an increase of $57 or 1.8% relative to Q1-2023 driven primarily by strong AMR growth and higher economic occupancy¹ at the Fund's property in Langley, BC.
• Net income and comprehensive income attributable to the Unitholders for Q1-2024 was $6,668 (Q1-2023 - $856), representing an increase of $5,812 relative to Q1-2023, primarily due to the fair value gain on the Properties, interest income and increased NOI, partially offset by a higher provision for carried interest.
• The Fund had approximately $4,378 of available liquidity as at March 31, 2024, which is expected to be used to fund existing operations.
• As at May 13, 2024, the Fund had collected approximately 99.7% of rents for Q1-2024, with further amounts expected to be collected in future periods, demonstrating the Fund's strong resident base and operating performance.
• Adjusted funds from operations ("AFFO")¹ for Q1-2024 was $408 (Q1-2023 - $123), representing an increase of $285 or 231.7% relative to Q1-2023, primarily due to an increase in NOI, partially offset by higher finance costs and fund and trust expenses.

FINANCIAL CONDITION AND OPERATING RESULTS

Highlights of the financial and operating performance of the Fund as at March 31, 2024 and for Q1-2024, including a comparison to December 31, 2023 and Q1-2023, as applicable, are provided below:

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 that may be used in this press release such as AFFO, AMR, adjusted net income and comprehensive income, cash provided by operating activities including interest and finance costs, economic occupancy, physical occupancy, FFO, gross book value, indebtedness, indebtedness coverage ratio, indebtedness to gross book value, interest coverage ratio, same property NOI and NOI (collectively, the "Non-IFRS Measures") as well as other measures discussed elsewhere in this press release, are not measures defined under IFRS as prescribed by the International Accounting Standards Board, do not have standardized meanings prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures as reported by other issuers. The Fund uses these measures to better assess its underlying performance 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 management's discussion and analysis ("MD&A") in the "Non-IFRS Financial Measures" section for Q1-2024 and are available on the Fund's profile on SEDAR+ at www.sedarplus.ca.

A reconciliation of the Fund's interest coverage ratio and indebtedness coverage ratio are provided below:

For Q1-2024, the interest coverage ratio and the indebtedness coverage ratio were 1.22x and 0.89x (Q1-2023 - 1.10x and 0.68x), respectively. The increase in both ratios during Q1-2024 relative to Q1-2023 was primarily due to increase in NOI and same property NOI. To the extent that these ratios are below 1.0x, any shortfall is covered by cash on hand.

CASH PROVIDED BY OPERATING ACTIVITIES RECONCILIATION TO FFO and AFFO

The Fund was formed as a "closed-end" fund with an initial term of three years, a targeted annual yield of 3.0% to 4.0% and a targeted minimum 12.0% pre-tax total investor internal rate of return across all Units.

Basic and diluted AFFO and AFFO per Unit for Q1-2024 were $408 and $0.03 (Q1-2023 - $123 and $0.01), respectively, representing an increase in AFFO of $285 or 231.7%, primarily due to an increase in NOI as well as same property NOI, partially offset by higher finance costs and fund and trust expenses.

A reconciliation of the Fund's cash provided by operating activities determined in accordance with IFRS to FFO and AFFO for Q1-2024 and Q1-2023 is provided below:

The Fund's cash used in operating activities, including interest and finance costs for Q1-2024 was $220 (Q1-2023 - cash provided by operating activities - $66), which was lower than distributions declared to Unitholders by $1,217 (Q1-2023 - $933). The shortfall in Q1-2024 was primarily due to higher interest costs related to variable rate debt, however, subsequent to March 31, 2024, the Fund has continued to mitigate the impact of higher interest costs related to variable rate debt by increasing its fixed rate debt from 80.5% to 91.1% (See "Subsequent Events"). Any shortfall between cash provided by operating activities and distributions paid is covered by cash on hand.

SUBSEQUENT EVENTS

On April 2, 2024, a portion of the Fund's fixed and variable debt amounts outstanding of $13,682 and $43,479 respectively, were replaced by a combination of fixed and variable debt amounting to $44,620 and $15,500, respectively, increasing the Fund's fixed rate debt from 80.5% to 91.1% of total debt.

On May 14, 2024, the Board approved an increase to the Fund's monthly pre-tax distribution per unit for all Units, applicable to its Unitholders of record as of May 31, 2024 and payable on June 15, 2024 as follows:

• $0.02936 per Class A Unit, representing approximately $0.35232 per Class A Unit on an annualized basis;
• $0.02846 per Class B Unit, representing approximately $0.34152 per Class B Unit on an annualized basis; and
• $0.03004 per Class C Unit, representing approximately $0.36048 per Class C Unit on an annualized basis.

The monthly distributions are expected to be as set out above until such time as the Fund announces any changes by way of a further press release.

FUTURE OUTLOOK

Throughout 2022 and 2023, concerns over rising cost inflation contributed to a significant increase in interest rates with the Bank of Canada raising its target interest rate from 0.25% in early 2022 to 5.00% as at May 14, 2024. Increases in target interest rates typically lead to increases in borrowing costs. Importantly, at March 31, 2024, 80.5% of the Fund's debt was fixed rate, which was subsequently increased to 91.1% (see "Subsequent Events"). Although inflation in Canada persists, it has declined from its peak in June 2022 of 8.1% to 2.9% in March 2024 with improvements in global supply chains and the effects of higher interest rates moving through the economy.

The significant increases in interest rates have also contributed to an increase in volatility across capital markets, leading banks and other debt providers to reduce their lending capacity while increasing the cost of new loans. Although operating fundamentals continue to be favorable as evidenced by the operating results achieved by the Fund, the Fund's financial results continue to be impacted by the significant increases in interest rates on variable debt while being mitigated by the Fund's predominately fixed debt structure. 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 annual yield of 3.0% to 4.0% across all classes of Units despite elevated 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 and ability to pay distributions.

According to Statistics Canada, the March 2024 unemployment rate in Canada was 6.4% as compared to an unemployment rate of 5.7% in BC, including the Primary Markets. BC gained approximately 77,800 jobs between March 2023 and March 2024, demonstrating the economic strength of the Primary Markets.

Each year, the Federal Department of Immigration, Refugees and Citizenship Canada ("IRCC") releases a new Immigration Levels Plan which it uses to guide its operations. In 2023, IRCC welcomed more than 470,000 immigrants to Canada. Between 2024 and 2026, Canada's target is to welcome more than 485,000 new permanent residents each year.

The above factors including the lack of housing supply and affordability has made it more challenging for existing residents of multi-family properties to buy homes. In addition, the construction slowdown of new homes due to higher interest rates has also continued to result in increased demand for multi-family suites.

The Primary Markets, including Langford, Nanaimo, Vernon and Langley, possess attractive qualities such as some of the fastest growing populations in BC with strong demographics of highly educated young professionals and families, diverse local job sectors, desirable dwelling 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 which drives occupancy and rent growth. The Fund believes it is well positioned to take advantage of increasing levels of immigration and favourable conditions.

Further disclosure surrounding the Future Outlook is included in the Fund's management's discussion and analysis in the "Future Outlook" section for Q1-2024 under the Fund's profile, which is available on www.sedarplus.ca.

FORWARD-LOOKING STATEMENTS 

Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws and reflect the Fund's current expectations regarding future events, including the overall financial performance of the Properties, as well as the impact of elevated levels of inflation and interest rates.

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. Readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information may relate to future results, the impact of 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 "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 extent and sustainability of higher levels of inflation and the potential impact on the Fund's operating costs; changes in government legislation or tax laws which would impact any potential income taxes or other taxes rendered or payable with respect to the Properties or the Fund's legal entities; the applicability of any government regulation concerning the Fund's residents or rents; the realization of property value appreciation and the timing thereof; the extent and pace at which any changes in interest rates that impact the Fund's weighted average interest rate may occur; and the availability of debt financing. 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 applicability of any government regulation concerning the Fund's residents or rents; the realization of property value appreciation and the timing thereof; the inventory of residential real estate properties; the ability of the Fund to benefit from any asset management initiatives 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 disposition of the Properties; availability of mortgage financing and current rates and market expectations for future 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 Starlight Investments CDN AM Group LP (the "Manager") to manage and operate the Properties; the global and Canadian economic environment; the impact, if any, of cost inflation on the Fund's operating costs; and governmental regulations or tax laws. There can be no assurance regarding: (a) cost inflation or changes in interest rates on the Fund's business, operations or performance; (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 relates 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 BC. The Fund has interests in and operates a portfolio comprising interests in 944 income producing multi-family suites located in the Primary Markets.

For the Fund's complete condensed consolidated interim financial statements and MD&A for the three months ended March 31, 2024 and any other information related to the Fund, please visit www.sedarplus.ca. 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 2024 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