STARLIGHT U.S. RESIDENTIAL FUND ACHIEVES ANNUALIZED RENT GROWTH OF 17.4% DURING Q3-2022, DISTRIBUTIONS PAUSED DUE TO ELEVATED INTEREST RATES

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TORONTO, Nov. 25, 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 September 30, 2022 ("Q3-2022") and nine months ended September 30, 2022 ("YTD-2022").

All amounts in this press release are in thousands of United States ("U.S.") dollars except for average monthly rent1 ("AMR") or unless otherwise stated. All references to "C$" are to Canadian dollars.

FUND UPDATE

The Fund continued to achieve strong operating results during Q3-2022 including 17.4% annualized rent growth and same property net operating income growth of 15.0%(1), reflecting the Fund's ability to take advantage of favorable operating conditions and increase NOI despite the inflationary pressure on operating costs. Operating fundamentals continued to be strong with the Fund's properties delivering rent growth at unprecedented levels.

The Fund is a closed-end investment vehicle with a strategy to maximize disposition proceeds by selling assets unencumbered during or at the end of the Fund's three year term. The Fund's strategy has been successfully deployed by the Fund's manager, Starlight Investments US AM Group LP or its affiliates (the "Manager"), in prior U.S residential funds during the past ten years resulting in attractive total returns(2). To meet this objective and given the Fund's relatively short, three year term, the Fund's financing strategy has been to source shorter-term, flexible mortgage debt which is repayable with no or minimal cost. As a result, the Fund's properties are financed with variable rate mortgages, rather than long-term, fixed rate debt with restrictive and costly repayment terms. To provide some mitigation against increases in interest rates, the Fund has purchased interest rate caps for certain of the Fund's loans, which expire in late 2023 and 2024(3).

Since early 2022, concerns over rising inflation have resulted in significant increases in interest rates with the U.S. Federal Reserve raising the Federal Funds Rate by 375 basis points, with further increases anticipated. The size and pace of interest rate increases has been unprecedented and has resulted in interest rates that are significantly higher than projected at the time the Fund financed its properties. The one-month term Secured Overnight Financing Rate ("Term SOFR") and U.S. 30-day London Interbank Offered Rate ("LIBOR") have increased by approximately 375 basis points since January 1, 2022.

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 during 2022, the Fund's financial results continue to be impacted by the significant increases in interest rates. As a result and the after consideration of various options, the Fund has determined that the most prudent course of action is to pause the Fund's monthly distributions effective with the November 2022 distribution, which would have been payable on December 15, 2022. The reduction in distributions amounts to approximately $9,600 per annum and is expected to provide the Fund with additional flexibility during this period of capital markets uncertainty.

The markets in which the Fund operates are expected to continue to demonstrate solid job and population growth and the Fund believes this prudent approach to managing the Fund's financial position and liquidity, while maintaining a flexible financing structure will allow the Fund to maximize the total return for investors by selling assets unencumbered when market conditions improve. Further, the impact of rising interest costs, high inflation and supply chain issues have historically reduced the supply of new and existing development projects. These supply constraints, alongside the stable and high levels of occupancy demonstrated in the Fund's target markets and supported by strong rental demand for multi-family apartments could result in future increases in rent growth and occupancy, with the Fund being well positioned to take advantage of any continuation in these favorable operating conditions during the remainder of the Fund's three-year term and on eventual sale of the Fund's properties.

"The Fund continues to own a high-quality, well located portfolio of multi-family apartments which has continued to demonstrate exceptional operating results," commented Evan Kirsh, the Fund's President. "The Fund's target markets have continued to experience strong demand and limited new supply. This dynamic coupled with declining household affordability has historically been supportive of capital appreciation. We believe pausing the Fund's distributions will allow the Fund to maximize the total return for investors upon the eventual sale of the Fund's properties."

Q3-2022 HIGHLIGHTS

• The Fund achieved a 17.4% annualized increase in AMR during Q3 2022 with strong rent growth continuing to be driven by increasing demand for multi-family suites in the primary markets in which the Fund operates. In addition, Sunlake Apartments ("Sunlake") and together with Indigo Apartments (the "Forecast Properties") reported AMR as at September 30, 2022 of $1,525, which was 3.5% ahead of the Fund's forecast as set out in the Fund's prospectus ("Forecast").
• Q3-2022 total portfolio revenue and net operating income1 ("NOI") were $9,830 and $6,076, respectively, representing a 188.9% and 172.0% increase relative to the Forecast primarily as a result of Eight at East, Lyric Apartments, The Ventura and Emerson at Buda (the "Non-Forecast Properties") not being included in the Forecast.
• As at November 25, 2022, the Fund had collected approximately 97.6% of rents during Q3-2022, with further amounts expected to be collected in future periods, demonstrating the Fund's high quality resident base and operating performance.
• Q3-2022 net loss and comprehensive loss was $14,897 (Forecast - loss of $188) primarily resulting from the fair value loss on investment properties reported during Q3-2022 driven by increases in capitalization rates partially offset by strong NOI growth reported by the Fund.

YTD-2022 Highlights

• During YTD-2022, the Fund achieved a 13.5% annualized increase in AMR, with strong rent growth driven by the increase in demand for multi-family suites in the primary markets in which the Fund operates.
• During YTD-2022, the Fund acquired Eight at East and a 90% partial interest in The 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, The Ventura and Emerson at Buda as well as net proceeds from the refinancing of Sunlake.
• During YTD-2022, the Fund acquired 49 single-family rental homes in Atlanta, Georgia for a total of $11,042 and as at November 7, 2022, had completed capital upgrades since the date of acquisition on all of the Fund's 98 single-family rental homes.
• Following the acquisitions described above, the Fund successfully deployed the proceeds from the the Fund's initial public offering on November 15, 2021, having assembled a portfolio of 1,973 multi-family suites across six markets and 98 single-family rental homes.
• YTD-2022 total portfolio revenue and NOI were $24,618 and $15,251, respectively, representing a 150.6% and 140.9% increase relative to the Forecast primarily as a result of the Non-Forecast Properties not being included in the Forecast.
• YTD-2022 net loss and comprehensive loss was $6,285 (Forecast - loss of $858) primarily driven by higher than forecasted deferred tax expense and finance costs.

FINANCIAL CONDITION AND OPERATING RESULTS

Highlights of the financial and operating performance of the Fund as at September 30, 2022 and December 31, 2021 and Q3-2022 and YTD-2022 are provided below:

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 adjusted funds from operations ("AFFO"), AMR, economic occupancy, estimated gap to market versus in-place rents, funds from operations ("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, 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 Q3-2022 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:

The Fund's interest and indebtedness coverage ratio's were 0.97x during Q3-2022, with the Fund reporting strong operating results offset by increases in the Fund's interest costs as a result of the Fund utilizing a variable rate debt strategy which allows the Fund to maintain maximum flexibility for the potential sale of the Fund's properties at the end of, or during, the Fund's three-year term. The Fund also has interest rate caps for approximately 77% of outstanding principal of the Fund's loans payable in place as at September 30, 2022 which protect the Fund from increases in SOFR or LIBOR beyond approximately 3.00%. The interest rate caps expire in late 2023 and 2024.

CASH PROVIDED BY OPERATING ACTIVITIES RECONCILIATION TO FFO and AFFO

The Fund was formed as a "closed-end" limited partnership 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. For Q3-2022, basic and diluted AFFO and AFFO per Unit were $(252) and $(0.01), respectively (Forecast - $1,201 and $0.10), representing a decrease of $1,452 primarily due to the Non-Forecast Properties not being included in the Forecast and higher than forecasted financing costs, partially offset by NOI at the Forecast Properties.

A reconciliation of the Fund's cash provided by operating activities determined in accordance with IFRS to FFO and AFFO for Q3-2022 and YTD-2022 is provided below:

COVID-19 IMPACT

The Fund continues to monitor the impact of Coronavirus (SARS-COV2), including the occurrence of new variants ("COVID-19") on the financial and operating performance of the Fund. There is a risk that delays in the timely administration of vaccination programs, changing strains of the 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 September 2022 slightly declined from June 2022 to 3.5% 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.

FUTURE OUTLOOK

The Fund continues to monitor current and potential market conditions and the impact these may have on the financial and operating performance of the Fund. As outlined above, the Fund has paused monthly distributions as a result of the significant increases in interest rates and continues to actively monitor liquidity to ensure appropriate capital is available to fund the ongoing operations of the Fund. Historically, investments in multi-family properties have provided an effective hedge against inflation given the short-term nature of lease terms which was reflected in the rent growth achieved at the Fund's properties during Q3-2022. 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 the Fund's condensed consolidated interim financial statements for the three and nine months ended September 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 Q3-2022 under the Fund's profile, which is available on www.sedar.com.

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 the COVID-19 global pandemic, 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, inflation levels, interest rates, the ability of the Fund to make and the resumption of future distributions, the impact of COVID-19 on the Fund's properties as well as the impact of COVID-19 on the markets in which the Fund operates, the trading price of the Fund's TSX Venture Exchange listed units which includes class A and U Units of the Fund ("Listed Units") and the Fund's unlisted units, which include all Units other than the Listed Units ("Unlisted Units"), 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 "COVID-19" and "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 potential higher levels of inflation and the potential impact on the Fund's operating costs; the extent and pace at which any changes in interest rates that impact the Fund's weighted average interest rate may occur; the ability of the Fund to make and the resumption of future distributions; the impact of COVID-19 on the Fund's properties as well as the impact of COVID-19 on the markets in which the Fund operates; the trading price of the Listed Units and Unlisted Units; changes in government legislation or tax laws which would impact any potential income taxes or other taxes rendered or payable with respect to the Fund's properties or the Fund's legal entities; the impact of rising interest costs, high inflation and supply chain issues have on new supply of multi-family apartments; the extent to which favorable operating conditions achieved during historical periods may continue in future periods; the applicability of any government regulation concerning the Fund's residents or rents as a result of COVID-19 or otherwise; and the availability of debt financing as loans payable become due during the Fund's term. 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 inflation and interest rates on the Fund's operating costs; the impact of rising interest rates market expectations for future interest rates on the Fund's performance; the availability of debt financing and as loans payable become due during the Fund's term; the impact of COVID-19 on the Fund's properties as well as the impact of COVID-19 on the markets in which the Fund operates; the trading price of the Units; the applicability of any government regulation concerning the Fund's residents 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 potential future acquisition, if any, 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 Fund's properties may be disposed and the timing thereof; closing and other transaction costs in connection with the acquisition and disposition of the Fund's properties; the extent of competition for residential properties; the growth in NOI generated and from its value-add initiatives; the population of residential real estate market participants; assumptions about the markets in which the Fund operates; the impact of rising interest costs, high inflation and supply chain issues have on new supply of multi-family apartments; the extent to which favorable operating conditions achieved during historical periods may continue in future periods; expenditures and fees in connection with the maintenance, operation and administration of the Properties; the ability of the Manager to manage and operate the Fund's properties or achieve similar returns to previous investment funds managed by the Manager; the global and North American economic environment; foreign currency exchange rates; the ability of the Fund to realize the estimated gap in market versus in-place rents through future rental rate increases; and governmental regulations or tax laws. Given this 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 September 30, 2022, the Fund owned interests in six 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 September 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 November 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-

Neither the TSX Venture Exchange nor its Regulation Services 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

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