/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES./
TORONTO, Aug. 9, 2022
/CNW/ - Starlight U.S. Residential Fund (TSXV: SURF.A) (TSXV:
SURF.U) (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").
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 the Fund's very strong Q2-2022
operating performance with net operating income continuing to be in
line with the Fund's forecast," commented Evan Kirsh, the Fund's President. "The Fund
reported strong rental growth with in-place rents at the end of
Q2-2022 being approximately 4.7% ahead of forecast and annualized
rent growth of approximately 13.9% during the quarter reflecting
the Fund's ability to take advantage of favorable operating
conditions."
Q2-2022 HIGHLIGHTS
- During Q2-2022, the Fund acquired Eight at East and a 90%
partial interest in The Ventura ("Ventura"), adding interests in an
additional 536 multi-family suites in Orlando, Florida and Phoenix, Arizona. The acquisitions were
financed through cash on hand, first mortgage financing at each of
Eight at East, Ventura and Emerson at Buda ("Emerson") as well as
the net proceeds from the refinancing of Bainbridge Sunlake
("Sunlake").
- During Q2-2022, the Fund acquired 11 single-family rental homes
in Atlanta, Georgia for a total of
$2,495 and as at August 8, 2022, had completed capital upgrades
since the date of acquisition on 89 of the Fund's 98 single-family
rental homes.
- The Fund completed the deployment of the proceeds from its
initial public offering on November 15,
2021 (the "Offering"), having assembled a portfolio of 1,973
multi-family suites across six markets and 98 single-family rental
homes.
- For Sunlake and Indigo Apartments (the "Forecast Properties"),
Q2-2022 revenue and NOI were $3,279
and $2,119, in line with the
financial forecast included in the Fund's prospectus dated
October 28, 2021 ("Forecast").
Q2-2022 total portfolio revenue and net operating income ("NOI")
were $8,212 and $5,067, respectively, representing a 150.2% and
139.2% increase relative to the Forecast primarily as a result of
Eight at East, Lyric Apartments, Ventura and Emerson (the
"Non-Forecast Properties") not being included in the Forecast.
- During Q2-2022, the Fund achieved significant increases in rent
growth with in-place rents at June 30,
2022 ahead of Forecast by 4.7% for the Forecast Properties
and the Fund reporting 13.9% annualized rent growth for the
properties owned by the Fund for the entire quarter. The strong
rent growth continued to be driven by growth in demand for
multi-family suites due to the economic strength following the
downturn created by COVID-19 in the U.S. and the primary markets in
which the Fund operates. In addition, the Fund reported an
estimated gap in market versus in-place rents of 14.6% as at
June 30, 2022 providing further
opportunity for rental increases in future periods.
- As at August 8, 2022, the Fund
had collected approximately 98.2% of rents for Q2-2022, with
further amounts expected to be collected in future periods,
demonstrating the Fund's strong tenant base and operating
performance.
- Q2-2022 net loss and comprehensive loss was $1,692 (Forecast - loss of $272).
- Adjusted funds from operations ("AFFO") for Q2-2022 was
$1,435, representing an increase of
$326 relative to the Forecast
primarily due to Non-Forecast Properties not being included in the
Forecast, partially offset by higher fund and trust expenses and
finance costs related to the Forecast Properties.
- On May 12, 2022, the Fund entered
into a new variable rate collar contract which enhanced the
previously existing contract to protect against the potential
impact of any weakening of the U.S. dollar on the amount required
to pay the Fund's monthly Canadian dollar distributions. This new
contract allows the Fund to establish a guaranteed monthly exchange
rate between C$1.2700 and
C$1.3400 for the conversion of U.S.
dollar funds to Canadian dollar funds amounting to C$930 per month from June
10, 2022 to November 10, 2022
and C$465 per month from December 10, 2022 to May
10, 2023.
ADDITIONAL YTD-2022 HIGHLIGHTS
- During YTD-2022, the Fund acquired 49 single-family rental
homes in Atlanta, Georgia for a
total of $11,042.
- During YTD-2022, the Fund recorded a fair value gain on the
properties owned by the Fund ("Properties") of $20,573, a 3.5% increase over the aggregate
purchase price driven by NOI growth.
- For the Forecast Properties, YTD-2022 revenue and NOI were
$6,519 and $4,235, ahead of Forecast by 1.6% and 3.4%,
respectively, primarily due to higher than forecasted AMR and
ancillary income as well as strong cost management. YTD-2022 total
portfolio revenue and NOI were $14,788 and $9,174,
respectively, representing a 130.4% and 123.9% increase relative to
the Forecast primarily as a result of the Non-Forecast Properties
not being included in the Forecast.
- YTD-2022 net income and comprehensive income was $8,608 (Forecast - loss of $665). The variance relative to the Forecast was
primarily driven by the fair value gain on investment properties
net of deferred taxes.
FUTURE OUTLOOK AND COVID-19 IMPACT
On March 11, 2020, the World
Health Organization characterized the outbreak of COVID-19 as a
global pandemic. 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 June 2022 remained consistent with March 2022 at 3.6% and down from a peak of
approximately 15% in April 2020. The
employment gains during that period were 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.
Since early 2022, concerns over rising inflation have resulted
in a significant increase in interest rates with the U.S. Federal
Reserve raising the overnight rate by 225 basis points, with
further increases anticipated for the duration of 2022. Interest
rate increases typically lead to increases in borrowing costs for
the Fund, reducing cashflow, given that the Fund employs a variable
rate debt strategy due to the Fund's three-year term in order to
provide maximum flexibility upon the eventual sale of the
Properties during or at the end of the Fund's term. Historically,
investments in multi-family properties have provided an effective
hedge against inflation given the short-term nature of the lease
term which was reflected in the rent growth 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 4.0% across all
classes of Units despite potential periods of increasing interest
rates. Furthermore, the Fund does have certain interest rate caps
in place which protect the Fund from increases in interest rates
beyond stipulated levels and for stipulated terms as described in
full detail in the Fund's condensed consolidated interim financial
statements for the three and six months ended June 30, 2022 and for the period from
September 23, 2021 to December 31, 2021 that is available at
www.sedar.com.
Further disclosure surrounding the Future Outlook is included in
the Fund's management's discussion and analysis in the "COVID-19"
and "Future Outlook" sections 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
December 31, 2021 and for Q2-2022 and
YTD-2022 are provided below:
|
|
|
June 30,
2022
|
December 31,
2021
|
Key Multi-Family
Operational Information(1)
|
|
|
|
|
Number of multi-family
properties owned (1)
|
|
|
6
|
4
|
Total multi-family
suites
|
|
|
1,973
|
1,437
|
Economic occupancy
(2)
|
|
|
93.7 %
|
95.6 %
|
AMR (in actual
dollars)
|
|
|
$
|
1,541
|
$
|
1,412
|
AMR per square foot (in
actual dollars)
|
|
|
$
|
1.62
|
$
|
1.49
|
Estimated gap in market
versus in-place rents
|
|
|
14.6 %
|
n/a
|
Number of
Single-Family Rental Homes (1)
|
|
|
98
|
49
|
|
|
|
June 30,
2022
|
December 31,
2021
|
|
Single-Family
|
Multi-Family
|
Total
|
Total
|
Selected Financial
Information
|
|
|
|
|
Gross book
value
|
$
|
25,126
|
$
|
683,667
|
$
|
708,793
|
$
|
449,539
|
Indebtedness
|
$
|
13,890
|
$
|
453,772
|
$
|
467,662
|
$
|
221,646
|
Indebtedness to gross
book value
|
55.3 %
|
66.4 %
|
66.0 %
|
49.3 %
|
Weighted average
interest rate - as at period end (3)
|
4.54 %
|
4.16 %
|
4.17 %
|
1.97 %
|
Weighted average loan
term to maturity
|
0.33 years
|
2.25 years
|
2.2 years
|
2.84 years
|
|
Q2-2022
|
Forecast
Q2-2022 (4)
|
YTD-2022
|
Forecast
YTD-2022(4)
|
Summarized Income
Statement (excluding Non-Controlling Interest)(5)
|
|
|
|
|
Revenue from property
operations
|
$
|
8,212
|
$
|
3,282
|
$
|
14,788
|
$
|
6,419
|
Property operating
costs
|
(1,958)
|
(716)
|
(3,482)
|
(1,426)
|
Property taxes
(6)
|
(1,187)
|
(448)
|
(2,132)
|
(896)
|
Adjusted Income from
operations / NOI
|
$
|
5,067
|
$
|
2,118
|
$
|
9,174
|
$
|
4,097
|
Fund and trust
expenses
|
(612)
|
(271)
|
(1,155)
|
(542)
|
Finance costs
(7)
|
(3,630)
|
(760)
|
(4,635)
|
(1,504)
|
Other income and
expenses (8)
|
(2,517)
|
(1,359)
|
5,224
|
(2,716)
|
Net income (loss) and
comprehensive income (loss) - attributable to Unitholders
(5)
|
$
|
(1,692)
|
$
|
(272)
|
$
|
8,608
|
$
|
(665)
|
Other Selected
Financial Information
|
|
|
|
|
Funds from operations
("FFO")
|
$
|
267
|
$
|
1,087
|
$
|
2,346
|
$
|
2,051
|
FFO per Unit - basic
and diluted
|
$
|
0.01
|
$
|
0.09
|
$
|
0.07
|
$
|
0.16
|
AFFO
|
$
|
1,435
|
$
|
1,109
|
$
|
3,934
|
$
|
2,151
|
AFFO per Unit - basic
and diluted
|
$
|
0.05
|
$
|
0.09
|
$
|
0.12
|
$
|
0.17
|
Weighted average
interest rate - average during period (9)
|
3.24 %
|
2.12 %
|
2.75 %
|
2.12 %
|
Interest coverage
ratio
|
1.44 x
|
2.71 x
|
1.88 x
|
2.64 x
|
Indebtedness coverage
ratio
|
1.44 x
|
2.71 x
|
1.88 x
|
2.64 x
|
Distributions to
Unitholders
|
$
|
2,438
|
$
|
993
|
$
|
4,900
|
$
|
1,986
|
Weighted average Units
outstanding (000s) - basic/diluted
|
31,820
|
12,520
|
31,820
|
12,520
|
(1) The Fund commenced
operations following the acquisition of Sunlake, Indigo, and 28
single-family homes on November 15, 2021. The number of
multi-family properties and single-family rental homes presented is
as at each reporting date above.
|
(2) Economic occupancy
for Q2-2022 and Q4-2021.
|
(3) The weighted
average interest rate on loans payable is presented as at June 30,
2022 reflecting the prevailing index rate, U.S. 30-day London
Interbank Offered Rate, 30-day New York Federal Reserve Secured
Overnight Financing Rate, or one-month term Secured Overnight
Financing Rate, as at that date or based on the average rate for
the applicable periods as it relates to quarterly rates.
|
(4) Forecast Q2-2022
and Forecast YTD-2022 only include results related to the Forecast
Properties.
|
(5) The Fund acquired a
90% interest in Ventura on May 25, 2022, with the remaining
non-controlling interest owned by an affiliate of Starlight
Investments US AM Group LP or its affiliates ("the Manager"). The
summarized income statement figures presented above reflect the net
income (loss) attributable to Unitholders only, and excludes any
amounts attributable to the non-controlling interest.
|
(6) Property taxes were
adjusted to exclude the International Financial Reporting
Interpretations Committee interpretations 21, Levies fair value
adjustment and treat property taxes as an expense that is amortized
during the fiscal year for the purpose of calculating
NOI.
|
(7) Finance costs
include interest expense on loans payable, non-cash amortization of
deferred financing costs, loss on early extinguishment of debt as
well as fair value changes in derivative financial
instruments.
|
(8) Includes
distributions to Unitholders, 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.
|
(9) The weighted
average interest rate on loans payable reflects the average
prevailing index rate applicable to each of the loans payable
throughout each period presented.
|
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, estimated gap in market
versus in-place rents, 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. 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 income (loss) and
comprehensive income (loss)
|
$
|
(1,692)
|
$
|
(272)
|
$
|
8,608
|
$
|
(667)
|
|
Add: non-cash or
one-time items and distributions (2)
|
3,052
|
1,438
|
(4,896)
|
2,873
|
Adjusted net income and
comprehensive income
|
$
|
1,360
|
$
|
1,166
|
$
|
3,712
|
$
|
2,206
|
Interest coverage ratio
(3)
|
1.44
x
|
2.71
x
|
1.88
x
|
2.64
x
|
Indebtedness coverage
ratio (4)
|
1.44
x
|
2.71
x
|
1.88
x
|
2.64
x
|
(1) Forecast Q2-2022
and YTD-2022 only include results related to the Forecast
Properties.
|
(2) Non-cash or
one-time items consist of deferred taxes, amortization of financing
costs and loan premiums, fair value adjustments on derivative
instruments, provisions for carried interest, loss on early
extinguishment of debt and unrealized foreign exchange
losses.
|
(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
AFFO
The Fund was formed as a "closed-end" fund 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 ("Units") of the Fund.
Basic and diluted AFFO and AFFO per Unit for Q2-2022 were
$1,435 and $0.05, respectively (Forecast - $1,109 and $0.09),
representing an increase of $326
relative to the Forecast primarily due to Non-Forecast Properties
not being included in the Forecast, partially offset by higher fund
and trust expenses and finance costs related to the Forecast
Properties.
A reconciliation of the Fund's cash provided by 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 provided by
operating activities
|
|
$
|
8,268
|
$
|
8,294
|
Less: interest costs
|
|
(3,108)
|
(4,280)
|
Cash used in
operating activities - including interest costs
|
|
$
|
5,160
|
$
|
4,014
|
Add /
(Deduct):
|
|
|
|
Change in non-cash
operating working capital
|
|
(5,246)
|
(1,997)
|
Loss on early
extinguishment of debt
|
|
(618)
|
(618)
|
Change in restricted
cash
|
|
1,455
|
1,712
|
Net income attributable
to non-controlling interests
|
|
5
|
5
|
Amortization of
financing costs
|
|
(489)
|
(770)
|
FFO
|
|
$
|
267
|
$
|
2,346
|
Add /
(Deduct):
|
|
|
|
Amortization of
financing costs
|
|
483
|
764
|
Loss on early
extinguishment of debt
|
|
618
|
618
|
Vacancy costs
associated with the single-family rental home upgrade
program
|
221
|
474
|
Sustaining capital
expenditures and suite or home renovation reserves
|
|
(154)
|
(268)
|
AFFO
|
|
$
|
1,435
|
$
|
3,934
|
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, 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 and the trading price of the Fund's TSX Venture Exchange
listed and unlisted Units, 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. 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 and
the trading price of the Units and unlisted Units; 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
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 (including single-family
rental homes) 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
availability and the price at which 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 impact of COVID-19 on the Properties 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 (including
single-family rental homes); 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
value-add program 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; inflation; the
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 value-add
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; 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. Residential Fund
The Fund is a "closed-end" fund formed under and governed by the
laws of the Province of Ontario,
pursuant to an initial declaration of trust dated September 23, 2021. The Fund was established for
the primary purpose of directly or indirectly acquiring, owning and
operating a portfolio primarily composed of income producing
residential properties in the U.S. residential real estate market
that can achieve significant increases in rental rates as a result
of undertaking high return, value-add capital expenditures and
active asset management. As at June 30,
2022, the Fund owned interests in four multi-family
properties consisting of 1,973 suites as well as 98 single-family
rental homes.
For the Fund's complete unaudited condensed 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 Fund's properties are
located, performance by the Fund's properties and a capital
investment update are also available in the Fund's August 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-
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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. Residential Fund