Mr. Evan Kirsh reports

STARLIGHT U.S. MULTI-FAMILY (NO. 2) CORE PLUS FUND ANNOUNCES Q3-2023 RESULTS

Starlight U.S. Multi-Family (No. 2) Core Plus Fund has released its results of operations and financial condition for the three months ended Sept. 30, 2023 (Q3 2023), and nine months ended Sept. 30, 2023 (year to date (YTD) 2023). Certain comparative figures are included for the three months ended Sept. 30, 2022 (Q3 2022), and nine months ended Sept. 30, 2022 (YTD 2022).

All amounts in this news release are in thousands of U.S. dollars except for average monthly rent (AMR) (1) or unless otherwise stated.

"The fund owns a high-quality, well-located portfolio of multifamily communities, which achieved a 3.9-per-cent increase in average monthly rents from Q3 2022 to Q3 2023," commented Evan Kirsh, the fund's president. "The fund continues to focus on increasing net operating income at its properties through active asset management and navigating the current challenging capital markets environment with the goal of maximizing the total return for investors upon exit."

Q3 2023 highlights:

• Q3 2023 revenue from property operations and net operating income (NOI) (1) were $5,333 and $3,387 (Q3 2022 -- $5,074 and $3,339), respectively, representing an increase of 5.1 per cent and 1.4 per cent relative to Q3 2022.
• The fund achieved a 3.9-per-cent increase in AMR from Q3 2022 to Q3 2023 as well as an estimated gap to market versus in-place rents (1) of 3.8 per cent as at the end of Q3 2023, providing further opportunity for rental increases in future periods.
• The fund completed 13 in-suite value-add upgrades at Summermill at Falls River during Q3 2023, which generated an average rental premium of $300 and an average return on cost of approximately 22.0 per cent.
• As at Nov. 13, 2023, the fund had collected 98.0 per cent of rents for Q3 2023, with further amounts expected to be collected in future periods, demonstrating the fund's high-quality resident base and operating performance.
• The fund reported a net income and comprehensive income for Q3 2023 of $104 (Q3 2022 -- net loss and comprehensive loss of $6,013), primarily resulting from NOI growth and recoveries recorded for non-cash provision for carried interest, partially offset by the fair value loss on investment properties reported in Q3 2023 as well as increases in finance costs.
• On July 26, 2023, the fund amended the existing loan payable to modify the loan at Hudson at East to a fixed rate loan bearing interest only payments at 5.75 per cent from the date of the amendment to the initial maturity date of May 7, 2025. As part of such amendment, the fund discharged its obligation to purchase a replacement interest rate cap in November, 2023, which is expected to allow the fund to retain liquidity that otherwise would have been utilized for the purchase of a replacement interest rate cap. The fund continues to have interest rate caps, swaps or fixed rate debt in place for 100 per cent of its mortgages on the fund's properties.
• On Aug. 9, 2023, Starlight U.S. Multi-Family (No.2) Core Plus GP Inc., the general partner of the fund, approved a one-year extension of the fund's term to Jan. 8, 2025, to provide the fund with the opportunity to capitalize on more robust market dynamics.

(1) This metric is a non-IFRS (international financial reporting standards) measure. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS.

YTD 2023 highlights:

• Revenue from property operations and NOI for YTD 2023 were $15,863 and $9,960 (YTD 2022 -- $13,092 and $8,663), respectively, representing a $2,771 and $1,297 increase relative to YTD 2022. The significant increases were primarily due to the acquisition of Summermill in Q2 2022, same-property revenue growth of 7.6 per cent and same-property NOI (1) growth of 1.9 per cent.
• Net loss and comprehensive loss for YTD 2023 totalled $11,288 (YTD 2022 -- net income and comprehensive income of $2,986), primarily as a result fair value loss on investment properties reported during YTD 2023 as well as increases in finance costs, partially offset by the increases in NOI, including same-property NOI growth, as well as recoveries recorded during YTD 2023 for the non-cash provisions for carried interest and deferred taxes.
• The fund completed 48 in-suite value-add upgrades at Summermill during YTD 2023, which generated an average rental premium of $301 and an average return on cost of approximately 21.0 per cent.

(1) This metric is a non-IFRS measure. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS.

Financial condition and operating results

Highlights of the financial and operating performance of the fund as at Sept. 30, 2023, for Q3 2023 and YTD 2023, including a comparison with Dec. 31, 2022, Q3 2022 and YTD 2022, as applicable, are provided in the attached table.

Subsequent events

On Nov. 7, 2023, the fund purchased an interest rate cap related to the Summermill loan payable for a 30-day term, having a notional amount of $82,895 at a strike rate of 3.00 per cent.

Future outlook

Since early 2022, concerns over elevated levels of inflation have resulted in a significant increase in interest rates with the U.S. Federal Reserve raising the federal funds rate by approximately 525 basis points. Interest rate increases typically lead to increases in borrowing costs for the fund, reducing cash flow, given the fund primarily employs a variable rate debt strategy due to the fund's initial three-year term in order to provide maximum flexibility upon the eventual sale of the fund's properties during or at the end of the fund's term. Historically, investments in multifamily properties have provided an effective hedge against inflation given the short-term nature of each resident lease, which has been demonstrated by the rent growth achieved at the fund's properties where AMR increased by 3.9 per cent from Q3 2022 to Q3 2023. Furthermore, the fund does have certain interest rate caps, swaps or fixed rate debt in place, which protect the fund from increases in interest rates beyond stipulated levels and for stipulated terms as described in detail in the fund's condensed consolidated interim financial statements for the three and nine months ended Sept. 30, 2023, and the audited consolidated financial statements for the year ended Dec. 31, 2022, which are available on SEDAR+. The fund also continues to closely monitor the U.S. employment and inflation data, as well as the U.S. Federal Reserve's monetary policy decisions in relation to future interest rates and resulting impact these may have on the fund's financial performance in future periods.

The impact of rising interest rates and higher levels of inflation have also significantly disrupted active and new construction of comparable communities in the primary markets in which the fund operates, which may create a temporary imbalance in supply of comparable multisuite residential properties in future periods. This imbalance, alongside the continued economic strength and solid fundamentals, may be supportive of favourable supply and demand conditions for the fund's properties in future periods and could result in future increases in occupancy and rent growth. The fund believes it is well positioned to take advantage of these conditions should they transpire given the quality of the fund's properties and the benefit of having a resident pool employed across a diverse job base.

The fund continues to closely monitor the financial impact of elevated interest rates and higher levels of inflation on the fund's liquidity and financial performance, including the costs of purchasing interest rate caps required to be replaced under certain of the fund's loan payables. In addition, market forecasts from RealPage anticipate a potential reduction in rent growth and occupancy for the markets in which the fund operates in relative to the levels achieved in 2023, which the fund considers along with a range of potential outcomes for financial performance when evaluating the fund's liquidity position. During this period of capital markets uncertainty, the fund may also enter into additional financing or evaluate potential asset sales to allow the fund to maintain sufficient liquidity to provide the fund with the opportunity to capitalize on more robust market dynamics with the goal of maximizing the total return for investors during the fund's term.

Further disclosure surrounding the future outlook is included in the fund's MD&A (management's discussion and analysis) in the future outlook section for Q3 2023 under the fund's profile, which is available on SEDAR+.

About Starlight U.S. Multi-Family (No. 2) Core Plus Fund

The fund is a limited partnership formed under the Limited Partnerships Act (Ontario) for the primary purpose of indirectly acquiring, owning and operating a portfolio of value-add, income-producing rental properties in the U.S. multifamily real estate market. The fund currently owns interests in three properties, consisting of 995 suites, with an average year of construction in 2013.

For the fund's complete condensed consolidated interim financial statements and MD&A for the three and nine months ended Sept. 30, 2023, and any other information related to the fund, please visit SEDAR+.

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