Mr. Evan Kirsh reports

STARLIGHT U.S. MULTI-FAMILY (NO. 2) CORE PLUS FUND ANNOUNCES Q4 2023 RESULTS

Starlight U.S. Multi-Family (No. 2) Core Plus Fund has filed its results of operations and financial condition for the three months ended Dec. 31, 2023 (Q4 2023), and year ended Dec. 31, 2023 (YTD 2023). Certain comparative figures are included for the three months ended Dec. 31, 2022 (Q4 2022), and year ended Dec. 31, 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.

"The fund owns a high-quality, well-located portfolio of multifamily communities which achieved a 3.9-per-cent increase in average monthly rents during 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."

Q4 2023 highlights

• Q4 2023 revenue from property operations and net operating income (NOI) were $5,266 and $3,248 (Q4 2022 -- $5,146 and $3,174), respectively, representing an increase of 2.3 per cent for both items relative to Q4 2022.
• The fund achieved a 3.9-per-cent increase in AMR from Q4 2022 to Q4 2023.
• The fund completed six in-suite value-add upgrades at Summermill at Falls River during Q4 2023, which generated an average rental premium of $280 and an average return on cost of approximately 22.0 per cent.
• The fund achieved physical occupancy of 92.6 per cent during Q4 2023, which subsequently increased to 95.0-per-cent physical occupancy as at April 25, 2024.
• As at April 28, 2024, the fund had collected 98.3 per cent of rents for Q4 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 loss and comprehensive loss for Q4 2023 of $30,780 (Q4 2022 -- $9,200), primarily resulting from the fair value loss on investment properties reported in Q4 2023 and increases in finance costs, partially offset by NOI growth in Q4 2023.
• On Jan. 22, 2024, the fund modified the Summermill loan payable to discharge its obligation to purchase a replacement interest rate cap and defer a portion of the debt service at the property, up to a maximum of $290 per month subject to certain terms. The amendment will allow the fund to retain additional liquidity of up to $3,480, per annum, highlighting the fund's focus on preserving liquidity to allow the fund to capitalize on more robust market dynamics upon the eventual sale of the fund's properties.
• On Feb. 27, 2024, Summermill was selected as a winner of the Carbon Reduction and Energy Conservation Award under the U.S. multifamily asset class for exceptional water conservation, as part of the Institute of Real Estate Management submissions.
• On Aug. 9, 2023, Starlight U.S. Multi-Family (No. 2) Core Plus, GP Inc., the general partner of the fund, approved the first one-year extension of the fund's term to Jan. 8, 2025. On April 29, 2024, Starlight GP amended the one-year extension of the fund's term to March 31, 2025, to coincide with the close date of the fund and provide the fund with the opportunity to capitalize on more robust market dynamics.

YTD 2023 highlights

• Revenue from property operations and NOI for YTD 2023 were $21,129 and $13,208 (YTD 2022 -- $18,238 and $11,837), respectively, representing a $2,891 and $1,371 increase relative to YTD 2022. The significant increases were primarily due to the acquisition of Summermill in Q2 2022, same-property revenue growth of 5.7 per cent and same-property NOI growth of 1.5 per cent.
• Net loss and comprehensive loss for YTD 2023 was $42,068 (YTD 2022 -- $6,214) 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 and recoveries recorded during YTD 2023 for the non-cash provisions for carried interest and deferred taxes.
• The fund completed 54 in-suite value-add upgrades at Summermill during YTD 2023, which generated an average rental premium of $298 and an average return on cost of approximately 21.0 per cent.
• 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, allowing the fund to retain liquidity that otherwise would have been utilized for the purchase of a replacement interest rate cap.

Financial condition and operating results

Highlights of the financial and operating performance of the fund as at Dec. 31, 2023, for Q4 2023 and YTD 2023, including a comparison with Dec. 31, 2022, Q4 2022 and YTD 2022 as applicable, are provided in the attached table.

Subsequent events

On Jan. 1, 2024, Starlight Investments U.S. AM Group LP (the manager) agreed to waive the fund's obligation to pay asset management fees, guarantee fees and capital project fees until further notice to allow the fund to retain substantial liquidity.

On Jan. 22, 2024, the fund modified the Summermill loan payable to discharge its obligation to purchase a replacement interest rate cap and defer a portion of the debt service at the property, up to a maximum of $290 per month subject to certain terms, allowing the fund to retain additional liquidity of up to $3,480, per annum. Any debt service amounts deferred on a monthly basis are repayable in full upon repayment of the loan and accrue interest at term SOFR (secured overnight financing rate) plus 8.00 per cent per annum.

On March 15, 2024, the fund extended the term of its $9,000 unsecured credit facility to July 1, 2024.

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 Q4 2022 to Q4 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 audited consolidated financial statements for the year ended Dec. 31, 2023, and the audited consolidated financial statements for the year ended Dec. 31, 2022, which are available at 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 primary markets in which the fund operates in, have seen an elevated level of new supply delivered during 2023 which contributed to the deceleration in rent growth in the primary markets during late 2023, relative to levels achieved in 2022 and earlier in 2023. Interest rates also continue to remain elevated which, along with higher levels of inflation and a softening in market conditions in late 2023, has significantly disrupted active and new construction of comparable communities in the primary markets in which the fund operates that would have otherwise been delivered in the second half of 2025 or 2026. This potential reduction in construction may create a temporary imbalance in the 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 in 2024 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.

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.

We seek Safe Harbor.