Minto Apartment REIT Reports 2020 Fourth Quarter and Year-End Financial Results

March 11, 2021 From Minto Apartment REIT

— 2020 full year highlights include increased AFFO1, higher distributions and strengthened liquidity —

OTTAWA, ON, March 11, 2021 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the fourth quarter and year ended December 31, 2020 ("Q4 2020" and "FY 2020", respectively). The Audited Consolidated Financial Statements for FY 2020 and Management's Discussion and Analysis ("MD&A") for Q4 2020 and FY 2020 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.

Q4 2020 Highlights

  • Total revenue was $30.9 million, an increase of 3.6% from the three months ended December 31, 2019 ("Q4 2019");
  • Net Operating Income ("NOI")1 was $18.9 million, an increase of 1.8% from Q4 2019;
  • Net income and comprehensive income was $23.0 million, an increase of 16.8% from $19.7 million in Q4 2019;
  • Funds from Operations ("FFO")1 increased by 2.4% to $12.0 million, compared to $11.7 million in Q4 2019; FFO1 per unit3 increased by 2.0% to $0.2036, compared to $0.1997 in Q4 2019;
  • Adjusted Funds from Operations ("AFFO")1 increased by 2.4% to $10.5 million, compared to $10.2 million in Q4 2019; AFFO1 per unit3 increased by 1.9% to $0.1771, compared to $0.1738 in Q4 2019;
  • Net asset value per unit1 increased by 8.3% to $22.26 per unit compared to Q4 2019;
  • The REIT recorded its highest ever average monthly rent as at December 31, 2020, excluding furnished and unoccupied suites, of $1,623, an increase of 2.8% compared to $1,579 as at December 31, 2019;
  • The REIT continued to productively deploy capital through its repositioning program, repositioning a total of 56 suites across its portfolio in Q4 2020, for a total of 239 in FY 2020;
  • On November 30, 2020, the REIT entered the Vancouver market through an $11.9 million investment loan to a 50-50 joint-venture between Minto Properties Inc. and a subsidiary of Darwin Properties Ltd. to assist in funding the development of a new residential rental property in the City of North Vancouver;
  • The REIT continues to be fully committed to ESG initiatives with the Board of Trustees approving the REIT's ESG Strategic Framework in Q4 2020, which will build on the existing strong foundation of environmental, social and governance practices already in place;
  • Maintained a strong balance sheet, with Debt to Gross Book Value ("Debt-to-GBV")1 as at December 31, 2020 declining to 38.6%, compared to 39.3% as at December 31, 2019;
  • Total available liquidity of $170.7 million as at December 31, 2020 will enable the REIT to continue to capitalize on opportunities to drive long term net asset value growth.

"Despite a challenging and uncertain environment, we are very pleased that our team was able to achieve stable operating and financial results in 2020." said Michael Waters, the REIT's Chief Executive Officer and President. "We are pleased to end the year with an 8.3% increase in net asset value1 and continued growth in both FFO1 and AFFO1 per unit3. The REIT remains committed and focused on its long term strategic objectives and strongly believes in the long term underlying fundamentals of its core markets, its high quality portfolio and the resilience of the multi-res sector. With approximately $170 million of available liquidity, we are well positioned to capitalize on opportunities during this period of continued uncertainty and we expect rental market conditions to strengthen materially over the course of this year as vaccinations increase."

COVID-19 Response and Impact on the REIT

The REIT's business has remained resilient throughout the pandemic. Rental collections have largely been consistent with pre-pandemic cycles. Occupancy of available unfurnished suites, which was 95.6% at December 31, 2020, was down from 97.0% in the third quarter of 2020 ("Q3 2020"), but has remained high despite an increasing number of move-outs and more challenging leasing conditions. The onset of the pandemic has altered the typical annual turnover pattern for the REIT's suites. Move-outs were unseasonably high in Q4 2020 and the REIT responded with higher volume of leases generating suite turnover rate of 6.2% during the quarter - significantly higher than a typical fourth quarter (discussed in detail below). In order to preserve long-term value, the REIT has elected to let vacancy increase somewhat rather than discounting rents heavily to fill suites. The REIT expects rental rates to improve in the second half of 2021 as vaccines are rolled-out, the economy improves, immigration increases and post-secondary students begin to return to in person classes.

The REIT generates incremental income by leasing approximately 3.2% of its suites on a furnished basis (232 suites out of 7,245 suites as at December 31, 2020). Since the onset of the COVID-19 crisis, Management has been focused on continued steady improvement in the furnished suite operations, increasing occupancy to 77.3% as of Q4 2020, up sequentially from 75.1% in Q3 2020 and the low point of 64.5% in the second quarter of 2020 ("Q2 2020").

The REIT's suite repositioning activities are progressing at a steady pace. With increased levels of move-outs in Q4 2020 and weaker market conditions, the REIT saw an opportunity to accelerate its repositioning program. The REIT is taking advantage of the increased vacancy to renovate a higher number of suites with the intent of having them ready for what is expected to be a more robust leasing season in the second half of 2021.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $170.7 million as at December 31, 2020, with a liquidity ratio (total liquidity/total debt) of 20.1% and a conservative Debt-to-GBV1 ratio of 38.6%.

The impact of COVID-19 is constantly evolving, and the REIT continues to adapt to the new realities brought on by the global pandemic. The REIT's priority remains the health and safety of its residents, employees, partners and communities.

Growth Initiatives

During Q4 2020, the REIT signed 406 new leases, a 35% increase compared to 300 new leases signed in Q4 2019. Despite unusually high move-outs in Q4 2020 due to the impact of COVID-19, completing this volume of leasing was a significant accomplishment, as leasing demand is typically lower during the winter months and holidays. The REIT achieved an average rental rate on the new leases that was 2.1% higher than the expiring rents, resulting in an increase in annualized revenue of approximately $0.2 million. Gains were realized in all markets except Alberta, including a gain of 8.2% in the Toronto market.

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 7.6%, representing future annualized embedded potential revenue of approximately $8.0 million. The embedded potential revenue opportunity declined from approximately $12.7 million as at September 30, 2020 and $16.2 million as at December 31, 2019. Management reduced its estimates of average market rents in all markets except Alberta during the quarter due to expected near-term softness in rental markets. However, Management expects the total gain-to-lease potential will increase in the second half of 2021 due to rising market rents as the economy emerges from the pandemic.

Despite disruptions to renovation activities, the REIT continued to make progress with its repositioning program in Q4 2020, repositioning a total of 56 suites across its portfolio. The current environment has provided an opportunity to accelerate the suite repositioning program and to capture the embedded gain to lease potential when favourable market conditions return. The annualized revenue gains realized on the suites that were repositioned in Q4 2020 generated an average 9% return on investment, which was consistent with the REIT's target return of 8% to 15% for this program. The REIT has a total of 2,323 suites remaining to be repositioned.

Certain REIT properties have the potential to develop additional rental suites on available excess land. Currently, the REIT is exploring development opportunities at its Richgrove, Leslie York Mills and High Park Village properties in Toronto. During Q4 2020, the REIT executed a contribution agreement with the City of Toronto under which the City will contribute funds towards construction of 100 affordable rental suites in a new 225-suite building at Richgrove. The REIT is in the final stages of obtaining development approvals, and is in the process of obtaining rental construction financing from CMHC. The REIT is also working through the site plan agreement with the City to add 192 new residential rental suites at Leslie York Mills. And at High Park Village, the REIT has received a favourable ruling from the Local Planning Appeal Tribunal for the rezoning of the property to allow for the addition of approximately 650 new residential rental suites. Management is in the process of satisfying the City's approval conditions.

Financial Summary

($000's except per unit amounts)

Three months ended December 31,


Year ended December 31,

2020

2019

Variance


2020

2019

Variance

Revenue from investment properties

$

30,930


$

29,868


3.6

%


$

124,929


$

104,438


19.6

%

Property operating costs

6,142


5,794


(6.0)

%


23,221


19,755


(17.5)

%

Property taxes

3,162


3,105


(1.8)

%


13,346


11,016


(21.2)

%

Utilities

2,680


2,356


(13.8)

%


9,742


8,370


(16.4)

%

NOI1

$

18,946


$

18,613


1.8

%


$

78,620


$

65,297


20.4

%

NOI1 margin (%)

61.3

%

62.3

%

(100) bps


62.9

%

62.5

%

40 bps

Same property revenue2

$

22,242


$

23,191


(4.1)

%


$

90,218


$

91,505


(1.4)

%

Same property NOI1,2

13,671


14,529


(5.9)

%


56,021


57,187


(2.0)

%

Same property NOI1,2 margin (%)

61.5

%

62.6

%

(110) bps


62.1

%

62.5

%

(40) bps

Same property revenue2 excluding
furnished suites

$

20,281


$

20,604


(1.6)

%


$

82,578


$

80,928


2.0

%

Same property NOI1,2 excluding
furnished suites

12,735


12,899


(1.3)

%


$

51,939


$

50,320


3.2

%

Same property NOI1,2 margin (%)
excluding furnished suites

62.8

%

62.6

%

20 bps


62.9

%

62.2

%

70 bps

Net income and comprehensive
income

$

23,010


$

19,708


16.8

%


$

179,638


$

19,966


799.7

%

FFO1

$

12,022


$

11,737


2.4

%


$

49,981


$

39,632


26.1

%

FFO1 per unit3

$

0.2036


$

0.1997


2.0

%


$

0.8465


$

0.8414


0.6

%

AFFO1

$

10,459


$

10,212


2.4

%


$

43,733


$

34,142


28.1

%

AFFO1 per unit3

$

0.1771


$

0.1738


1.9

%


$

0.7407


$

0.7248


2.2

%

Distribution per unit3

$

0.1138


$

0.1100


3.5

%


$

0.4463


$

0.4225


5.6

%

AFFO1 payout ratio

64.2

%

63.3

%

90 bps


60.3

%

58.6

%

170 bps

Q4 2020 Operating Results

Revenue in Q4 2020 totalled $30.9 million, an increase of 3.6% from $29.9 million in Q4 2019. The increase was primarily attributable to the contribution from the two property acquisitions the REIT completed subsequent to September 30, 2019, comprising a total of 528 suites, as well as higher rental rates, partially offset by decreased revenue from furnished suites.

Same property revenue2 declined 4.1% to $22.2 million in Q4 2020, compared to $23.2 million in Q4 2019, reflecting decreased revenue from furnished suites, lower occupancy, increased promotions, lower fitness membership revenue, and lower party room rental revenue, partially offset by higher rents achieved on new leases and repositioned suites, and higher revenue from commercial leases. Same property revenue2 excluding furnished suites declined 1.6% to $20.3 million in Q4 2020, from $20.6 million in Q4 2019.

Occupancy of available unfurnished suites as at December 31, 2020 was 95.6%, compared to 98.0% as at December 31, 2019; same property occupancy2 of available unfurnished suites as at December 31, 2020 was 95.1%, compared to 97.8% as at December 31, 2019.

NOI1 for Q4 2020 totalled $18.9 million, representing 61.3% of revenue, an increase of 1.8% from $18.6 million, or 62.3% of revenue, in Q4 2019. The increase reflected the contribution from the property acquisitions completed subsequent to September 30, 2019 partially offset by lower revenue from furnished suites and lower same property NOI1,2 excluding furnished suites.

Same property NOI1,2 decreased 5.9% in Q4 2020 to $13.7 million, or 61.5% of revenue, compared to $14.5 million, or 62.6% of revenue, in Q4 2019. Three properties, Minto Yorkville, Minto one80five and Roehampton, comprise most of the unfavourable variance in the REIT's same property NOI1,2. The vast majority of the REIT's furnished suites are located in these three core urban properties, which have been hit hardest by COVID-19 related border closures, business lockdowns and work-from-home requirements. The REIT's same property NOI1,2, excluding these three properties, increased 1.4% in Q4 2020 compared to Q4 2019.

NOI1 margin was 61.3%, 100 basis points ("bps") lower than Q4 2019; same property NOI1,2 margin was 61.5%, 110 bps lower than Q4 2019; same property NOI1,2 margin excluding furnished suites was 62.8%, 20 bps higher than Q4 2019.

FFO1 in Q4 2020 increased 2.4% to $12.0 million, or $0.2036 per unit3, compared to $11.7 million, or $0.1997 per unit3, in Q4 2019. The higher FFO1 in Q4 2020 primarily reflected the positive NOI1 variance. AFFO1 in Q4 2020 increased 2.4% to $10.5 million, or $0.1771 per unit3, compared to $10.2 million, or $0.1738 per unit3, in Q4 2019. The positive variance in AFFO1 for Q4 2020 primarily reflected the higher FFO1, partially offset by an increase in the maintenance capital expenditure reserve due to the REIT's increased suite count.

The REIT reported net income and comprehensive income for Q4 2020 of $23.0 million, an increase of 16.8% compared to $19.7 million in Q4 2019.

The REIT paid cash distributions totalling $0.1138 per unit3 for Q4 2020, an increase of 3.5% and representing an AFFO1 payout ratio of 64.2%. Cash distributions of $0.1100 per unit3 were paid in Q4 2019, representing an AFFO1 payout ratio of 63.3%.

Balance Sheet

On December 8, 2020, the REIT filed a short form base shelf prospectus, allowing the issuance, from time to time, of REIT Units, debt securities, and subscription receipts, or any combination thereof, for an aggregate amount of up to $800 million.

As of December 31, 2020, the REIT had total debt outstanding of $849.9 million, with a weighted average interest rate of 2.94% and a weighted average term to maturity of 5.81 years for its fixed-rate term debt. The Debt-to-GBV1 ratio was 38.6%.

________________________________________

1

NOI, FFO, AFFO, Net asset value per unit and Debt-to-GBV are non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" in this news release.

2

The same property portfolio consists of 24 multi-residential rental properties comprising an aggregate of 4,554 suites that were wholly owned by the REIT for equivalent periods in 2020 and 2019. A total of 232 of these suites operate as furnished suites. The same property portfolio includes The Quarters in Calgary, acquired on January 7, 2019, as the exclusion of the impact of the first six days of January is not considered material.

3

Includes REIT Units and Class B LP Units of Minto Apartment Limited Partnership, which are exchangeable for REIT Units on a one-for-one basis.

Conference Call

Michael Waters, Chief Executive Officer and President, and Julie Morin, Chief Financial Officer, will host a conference call for analysts and investors on Friday, March 12, 2021 at 10:00 am ET. The dial-in numbers for participants are 416-764-8688 or 888-390-0546. In addition, the call will be webcast live at:

https://produceredition.webcasts.com/starthere.jsp?ei=1427164&tp_key=da670e0287 

A replay of the call will be available until Friday, March 19, 2021. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 230891 #). A transcript of the call will be archived on the REIT's website.

About Minto Apartment Real Estate Investment Trust

Minto Apartment Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario to own income-producing multi-residential properties located in urban markets in Canada. The REIT owns a portfolio of high-quality income-producing multi-residential rental properties located in Toronto, Montreal, Ottawa, Calgary and Edmonton. For more information on Minto Apartment REIT, please visit the REIT's website at: www.mintoapartments.com.

Forward-Looking Information

This news release may contain forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events and in some cases can be identified by such terms as "will" and "expects". Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under "Risk Factors" in the REIT's Annual Information Form dated March 11, 2021, which is available on SEDAR (www.sedar.com). The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

Non-IFRS Financial Measures

This news release contains certain financial measures which are not defined under International Financial Reporting Standards ("IFRS") and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. The REIT believes that AFFO is an important measure of earnings performance, while NOI and FFO are important measures of operating performance of real estate businesses and properties and Debt-to-GBV is an important measure of financial leverage. These measures, as well as any associated "per unit" amounts, are not defined by IFRS and do not have standardized meanings prescribed by IFRS, and therefore should not be construed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. The IFRS measurement most directly comparable to NOI, FFO and AFFO is net income. See the FY 2020 MD&A for further discussion of these non-IFRS financial measures and for a reconciliation of NOI, FFO and AFFO to net income.

SOURCE Minto Apartment Real Estate Investment Trust

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