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TORONTO, May 10, 2022 /CNW/ – Starlight U.S. Residential Fund (TSXV:SURF) (TSXV:SURF) (the “Fund”) announced today its results of operations and financial condition for the three months ended March 31, 2022 (“Q1-2022”).
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 strong operating performance in the Fund’s first full quarter of operations, with revenues and net operating income both ahead of forecast,” commented Evan Kirsh, the Fund’s President. “The Fund continued to achieve strong rental growth with in-place rents at the end of Q1-2022 being approximately 4.7% ahead of forecast and annualized rent growth of 11% during the quarter, positioning the Fund to take advantage of favorable market conditions.”
During Q1-2022, the Fund recorded a fair value gain on Emerson at Buda (“Emerson”), Bainbridge Sunlake (“Sunlake”), Indigo Apartments (“Indigo”) and Lyric Apartments (“Lyric”) (collectively, the “MF Properties”) of $20,574, a 6.2% increase over the aggregate purchase price since the MF Properties were acquired by the Fund in late 2021. The fair value gain during Q1-2022 was driven by net operating income (“NOI”) growth and capitalization rate compression from strong demand in the investment market for multi-family properties across the primary markets in which the Fund operates (“Primary Markets”).
During Q1-2022, the Fund acquired 38 single-family rental homes in Atlanta, Georgia for a total of $8,547 and completed capital upgrades on 41 single-family rental homes.
Subsequent to March 31, 2022, the Fund entered into a $56,000 loan payable secured by Emerson, which in addition to the cash on hand in the Fund, was used to partly fund the acquisition of Eight at East, a 264-suite multi-family property in Orlando, Florida with the remainder anticipated to be used to partly fund the acquisition of a partial interest in The Ventura (“Ventura”), a 272-suite multi-family property in Phoenix, Arizona which is currently under contract.
Following the anticipated completion of the Ventura acquisition during the three months ended June 30, 2022, the Fund will have fully deployed 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 approximately 100 single-family rental homes.
Q1-2022 total portfolio revenue and NOI were $6,577 and $4,108, respectively, representing a 109.7% and 107.6% increase relative to the financial forecast included in the Fund’s prospectus dated October 28, 2021 (“Forecast”) primarily as a result of Lyric, Emerson, and the single-family rental homes (“Non-Forecast Properties”) not being included in the Forecast. For Indigo and Sunlake (“Forecast Properties”), Q1-2022 revenue and NOI were $3,240 and $2,116, ahead of Forecast by 3.3% and 6.9%, respectively, primarily due to higher than forecasted AMR and ancillary income as well as strong cost management.
Significant increases in rent growth were achieved during Q1-2022 with the Fund reporting in-place rents ahead of Forecast by 4.7% for the total portfolio and ahead of Forecast by 1.5% for the Forecast Properties.
The Fund achieved 11.0% annualized rent growth during Q1-2022, with increases driven by continued growth in demand for multi-family suites due to the economic strength following the downturn created by the outbreak of the coronavirus (SARS – CoV2) and its variants (“COVID-19”) in the U.S. and the Primary Markets.
Q1-2022 net income and comprehensive income was $10,299 (Forecast – loss of $395). The variance relative to the Forecast was primarily driven by the fair value gain on investment properties.
Adjusted funds from operations (“AFFO”) for Q1-2022 was $2,497, representing an increase of $1,512 or 153.5% relative to the Forecast primarily due to Non-Forecast Properties not being included in the Forecast, partly offset by higher fund and trust expenses and finance costs related to the Forecast Properties.
As at May 9, 2022, the Fund had collected approximately 98.7% of rents for Q1-2022, with further amounts expected to be collected in future periods, demonstrating the Fund’s strong operating performance.
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic. Although COVID-19 has resulted in a volatile economy, the Fund believes it is well positioned to navigate through this challenging time and continues to undertake proactive measures at the Fund’s properties to combat the spread of COVID-19, assist tenants where needed and implement other measures to minimize business interruption. The Fund intends to actively monitor any continued impact COVID-19 may have on the Fund’s operating results in future periods specifically as they relate to rent collections, occupancy, rent growth, ancillary fees and expenses incurred for preventative measures in response to COVID-19.
COVID-19 vaccination programs continue across the U.S. to varying degrees in different states and jurisdictions with the immunization efforts widely considered to have been successful to date relative to other countries globally and the approval of a third and fourth COVID-19 dose by the U.S. Food and Drug Administration to help further advance immunization efforts in preventing the spread of COVID-19. However, there is a risk that delays in the timely administration of vaccination programs, changing strains of the virus, including the occurrence of new variants of COVID-19, or reluctance to receive vaccinations could prolong the impacts of COVID-19 and have the potential to cause further adverse economic conditions. According to the U.S. Department of Labor, unemployment rates for March 2022 declined to 3.6% (from a peak of approximately 15% in April 2020) with such employment gains broadly diversified across many industries and driven by the continued economic reopening linked to the successful vaccination program across the U.S. The sustained rollout of the vaccination program is expected to continue to improve economic growth and employment throughout the U.S., although there can be no certainty with respect to the timing of these improvements.
Further disclosure surrounding the impact of COVID-19 are included in the Fund Management’s Discussion and Analysis (“MD&A”) in the “COVID-19” and “Future Outlook” sections for Q1-2022 under the Fund’s profile, which is available on www.sedar.com.
FINANCIAL CONDITION AND OPERATING RESULTS
Highlights of the financial and operating performance of the Fund as at March 31, 2022 and December 31, 2021 and for Q1-2022 are provided below:
March 31, 2022
December 31, 2021
Key Multi-Family Operational Information(1)
Number of multi-family properties owned (1)
Total multi-family suites
Economic occupancy (2)
AMR (in actual dollars)
AMR per square foot (in actual dollars)
Number of Single-Family Rental Homes (1)
March 31, 2022
December 31, 2021
Selected Financial Information
Gross book value
Indebtedness to gross book value
Weighted average interest rate – as at period end (3)
Weighted average loan term to maturity