Minto Apartment REIT Reports 2021 Second Quarter Financial Results

August 12, 2021 From Minto Apartment REIT

— Organic rent growth and record leasing activity amid improving market conditions —

OTTAWA, ON, Aug. 12, 2021 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the second quarter ("Q2 2021") and six months ended June 30, 2021. The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q2 2021 and the six months ended June 30, 2021 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.

Q2 2021 Highlights

  • The REIT entered into a record 534 new leases, a 58% increase compared to 339 new leases signed in the second quarter ended June 30, 2020 ("Q2 2020");
  • The REIT achieved an average rental rate on the new leases that was 5.9% higher than the expiring rents;
  • The REIT recorded its highest ever average monthly rent as at June 30, 2021, excluding furnished and unoccupied suites, of $1,640, an increase of 0.6% compared to $1,630 as at March 31, 2021, and an increase of 1.9% compared to $1,609 as at June 30, 2020;
  • Average occupancy was 91.5% in Q2 2021 compared to 91.1% in the first quarter of 2021 ("Q1 2021") and 96.2% in Q2 2020. This was the first sequential improvement in occupancy for the REIT since the onset of the COVID-19 pandemic;
  • Construction commenced on Phase I of Lonsdale Square in North Vancouver. The REIT has advanced a convertible development loan on this project and has an option to purchase the project upon stabilization at a 5% discount to its then-appraised fair market value;
  • The REIT recorded a $50.5 million fair value gain on its investment properties in Q2 2021 on the basis of strong investment demand and pricing for multi-residential properties;
  • Total revenue was $29.9 million, compared to $31.3 million in Q2 2020;
  • Net Operating Income ("NOI")1 was $19.0 million, compared to $20.0 million in Q2 2020;
  • Funds from Operations ("FFO")1 were $11.9 million, or $0.2022 per unit2, compared to $12.7 million, or $0.2144 per unit2, in Q2 2020;
  • Adjusted Funds from Operations ("AFFO")1 were $10.4 million, or $0.1757 per unit2, compared to $11.1 million, or $0.1879 per unit2, in Q2 2020;
  • Net income and comprehensive income were $8.7 million, compared to $12.1 million in Q2 2020;
  • The REIT continued to productively deploy capital through its repositioning program, earning an annualized 8.4% return on the capital invested in the repositioning of 88 suites across its portfolio in Q2 2021;
  • The REIT maintained a strong balance sheet, with Debt to Gross Book Value ("Debt-to-GBV")1 as at June 30, 2021 of 38.6%, in line with Debt-to-GBV1 of 38.6% at the end of 2020;
  • Total available liquidity was $127.9 million as at June 30, 2021, enabling the REIT to maintain financial flexibility and continue to capitalize on opportunities to drive long term net asset value ("NAV")1 growth;
  • On April 29, 2021, the REIT announced an agreement to provide a convertible development loan of up to $51.4 million (comprised of direct advances of up to $43.7 million and an interest reserve of up to $7.7 million) for the development of a mixed-use 229-suite multi-residential and commercial rental property on Beechwood Avenue in the New Edinburgh neighbourhood of Ottawa, Ontario3. An initial advance of $9.1 million was made on April 29, 2021. The REIT earns a return of 6% on the financing and has an option to purchase the building on stabilization at a 5% discount to its then-appraised fair market value. The rezoning of this project for its intended redevelopment was completed in July, 2021;
  • On May 5, 2021, the REIT renewed its revolving credit facility for a period of three years, maturing on July 3, 2024; and
  • On June 29, 2021, the REIT announced the appointment of Paul Baron as Senior Vice President, Operations.













1 NOI, FFO, AFFO, NAV and Debt-to-GBV are non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" in this news release.

2 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.

3 Suite count is subject to final zoning and development approvals.

"The second quarter was highlighted by record leasing activity, as we signed 534 new leases and generated a 5.9% gain-on-turn," said Michael Waters, the REIT's Chief Executive Officer and President. "Rental market conditions are gradually improving. While our occupancy remains below pre-pandemic levels, we are pleased to be generating strong leasing activity while simultaneously reducing promotions. As COVID-19 vaccinations continue to ramp up across Canada, population growth accelerates, and the benefits of urban living are fully re-established, we are confident that our financial performance will steadily improve. And with our strong liquidity position and conservative Debt-to-GBV1, we are continuing to pursue attractive opportunities for growth in NAV1 and AFFO1, including the Beechwood Avenue development in Ottawa that we announced during the second quarter."

COVID-19 Impact on the REIT

The pace of COVID-19 vaccinations accelerated significantly in Canada during Q2 2021 as a result of increased vaccine supply. At the end of the quarter, approximately 68% of Canadians had received their first dose and 36% were fully vaccinated and these rates continued to improve subsequent to quarter end. With vaccinations increasing, provincial governments have eased restrictions on economic activity. However, the measures implemented to slow the spread of COVID-19, including border and business closures, have continued to impact demand for both the REIT's furnished and unfurnished suites.

Despite these challenges, rental collections have been largely consistent with pre-pandemic cycles. The REIT's bad debt expense as a percentage of revenues was 0.48% in Q2 2021, only slightly above the average of 0.25% of revenues prior to the pandemic.

With economic re-opening underway and leasing activity on the rise, average occupancy of unfurnished suites increased slightly to 91.5% in Q2 2021, compared to 91.1% in Q1 2021, as move-ins outpaced move-outs for the first time since the outbreak of the COVID-19 pandemic. In order to preserve long-term value, the REIT is balancing rate, occupancy and incentives. The REIT has also reduced the amount of promotions being used to improve occupancy, as demand for suites has increased.

The REIT generates incremental income by leasing approximately 3.0% of its suites on a furnished basis (215 suites out of 7,277 suites as at June 30, 2021). Furnished suite occupancy increased to 74.4% in Q2 2021, compared to 62.5% in Q1 2021 and 64.5% in Q2 2020. The average monthly rent for furnished suites improved in Q2 2021 to $3,572 from $3,540 in Q1 2021. Management will continue to adjust rental rates and furnished suite inventory over time in response to demand and changing market conditions.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $127.9 million as at June 30, 2021, with a liquidity ratio (total liquidity/total debt) of 14.5% 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.

Organic Growth Initiatives

During Q2 2021, the REIT signed 534 new leases, a 58% increase compared to 339 new leases signed in Q2 2020. The REIT achieved an average rental rate on the new leases that was 5.9% higher than the expiring rents, resulting in an increase in annualized revenue of approximately $0.4 million. The 534 new leases represented the most leases that the REIT has signed in any quarter since its inception. Gains were realized in all of the REIT's markets. The 5.9% gain was lower than the 7.6% gain that the REIT generated in Q1 2021, but significantly stronger than the 2.1% gain recorded in the fourth quarter of 2020 ("Q4 2020").

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 5.8% as at June 30, 2021, representing future annualized embedded potential revenue of approximately $6.3 million. That compares to an annualized revenue growth opportunity of $8.0 million estimate as at December 31, 2020, and $13.4 million as at June 30, 2020. Management expects the gain-to-lease potential to increase as COVID-19 restrictions are relaxed, immigration returns to target levels, post-secondary schools return to in-person learning and office workers return to the office. Management also expects to realize a significant portion of the gain-to-lease potential over the next three to five years.

The REIT continued to make progress with its repositioning program in Q2 2021, repositioning a total of 88 suites across its portfolio. The annualized revenue gains realized on the suites that were repositioned in Q2 2021 generated an average 8.4% return on investment. The REIT has a total of 2,369 suites remaining to be repositioned.

In addition, the REIT continued to take advantage of vacancies at certain properties to make improvements to suites on turnover in excess of the typical work completed on a regular turnover (an "enhanced turn"). In Q2 2021, 22 suites were leased after completing enhanced turns, and the annualized rental rate increases generated returns in excess of 8%.

The REIT has advanced convertible development loans for the development of three properties: Fifth + Bank and Beechwood in Ottawa, and Lonsdale Square in North Vancouver. In addition, the REIT is pursuing development of additional rental suites on available excess land at three Toronto properties: Richgrove, Leslie York Mills, and High Park Village. Combined, these six development opportunities have the potential to increase the REIT's suite count by 1,572 suites (a 22% increase from the REIT's current suite count). Further information on these opportunities is available in the REIT's Q2 2021 MD&A.

Financial Summary





($000's except per unit amounts)

Three months ended June 30,


Six months ended June 30,

2021

2020

Variance


2021

2020

Variance

Revenue from investment
properties

$

29,885


$

31,319


(4.6)

%


$

59,884


$

62,844


(4.7)

%

Property operating costs

5,792


5,714


(1.4)

%


11,563


11,497


(0.6)

%

Property taxes

2,870


3,465


17.2

%


6,378


6,885


7.4

%

Utilities

2,205


2,116


(4.2)

%


5,041


4,949


(1.9)

%

NOI1

$

19,018


$

20,024


(5.0)

%


$

36,902


$

39,513


(6.6)

%

NOI1 margin (%)

63.6

%

63.9

%

(30) bps


61.6

%

62.9

%

(130) bps

Revenue excluding furnished suites

$

28,103


$

29,464


(4.6)

%


$

56,571


$

58,912


(4.0)

%

NOI1 excluding furnished suites

18,181


18,755


(3.1)

%


35,495


37,193


(4.6)

%

NOI1 margin (%) excluding
furnished suites

64.7

%

63.7

%

100 bps


62.7

%

63.1

%

(40) bps

Net income and comprehensive
income

$

8,727


$

12,054


(27.6)

%


$

(11,700)


$

99,998


(111.7)

%

FFO1

$

11,941


$

12,659


(5.7)

%


$

22,832


$

24,776


(7.8)

%

FFO1 per unit2

$

0.2022


$

0.2144


(5.7)

%


$

0.3867


$

0.4196


(7.8)

%

AFFO1

$

10,373


$

11,097


(6.5)

%


$

19,695


$

21,655


(9.1)

%

AFFO1 per unit2

$

0.1757


$

0.1879


(6.5)

%


$

0.3336


$

0.3668


(9.1)

%

Distribution per unit2

$

0.1138


$

0.1100


3.5

%


$

0.2275


$

0.2200


3.4

%

AFFO1 payout ratio

64.8

%

58.5

%

(630) bps


68.2

%

60.0

%

(820) bps

Q2 2021 Operating Results

Revenue in Q2 2021 totalled $29.9 million, compared to $31.3 million in Q2 2020. Revenue from unfurnished suites declined by 6.0% year over year, primarily due to reduced occupancy and higher promotions, partially offset by higher average rents. The majority of the decline was attributable to reduced occupancy at some of the REIT's core-urban properties where the negative impact of COVID-19 was most pronounced. Revenue from furnished suites declined by 3.9% as management adjusted rental rates and customer mix to capture demand. These measures resulted in higher occupancy.

Occupancy of unfurnished suites averaged 91.5% in Q2 2021, compared to 91.1% in Q1 2021 and 96.2% in Q2 2020. Occupancy of furnished suites averaged 74.4% in Q2 2021, compared to 62.5% in Q1 2021 and 64.5% in Q2 2020.

NOI1 for Q2 2021 totalled $19.0 million, representing 63.6% of revenue, compared to $20.0 million, or 63.9% of revenue, in Q2 2020. The lower NOI1 in Q2 2021 reflected the reduction in revenue described above. NOI1 excluding furnished suites was $18.2 million, or 64.7% of revenue, in Q2 2021 compared to $18.8 million, or 63.7% of revenue, in Q2 2020.

FFO1 in Q2 2021 was $11.9 million, or $0.2022 per unit2, compared to $12.7 million, or $0.2144 per unit2, in Q2 2020. The lower FFO1 in Q2 2021 primarily reflected the negative NOI1 variance. AFFO1 in Q2 2021 was $10.4 million, or $0.1757 per unit2, compared to $11.1 million, or $0.1879 per unit2, in Q2 2020. The reduction in AFFO1 for Q2 2021 reflected the lower FFO.1

The REIT reported net income and comprehensive income of $8.7 million in Q2 2021, compared to $12.1 million in Q2 2020. The negative variance was primarily attributable to an increased fair value loss on Class B LP Units of $50.8 million in Q2 2021, compared to $9.1 million in Q2 2020. This was partially offset by an increased fair value gain on investment properties of $50.5 million in Q2 2021, compared to $11.4 million in Q2 2020.

The REIT paid cash distributions of $0.1138 per unit2 for Q2 2021, an increase of 3.5% compared to Q2 2020 and representing an AFFO1 payout ratio of 64.8%. Cash distributions of $0.1100 per unit2 were paid in Q2 2020, representing an AFFO1 payout ratio of 58.5%.

Balance Sheet

As of June 30, 2021, the REIT had total debt outstanding of $883.1 million, with a weighted average interest rate of 2.90% and a weighted average term to maturity of 5.42 years for its fixed-rate term debt. The Debt-to-GBV1 ratio was 38.6%. The REIT's IFRS NAV per unit at the end of Q2 2021 was $23.29 up 4.2% from $22.36 in Q1 2021.

Outlook

With successful vaccination roll-out efforts and provincial re-opening plans underway across Canada, management believes the operating environment and tenant demand will steadily improve during the second half of 2021 and through 2022, resulting in improved financial performance. Management expects that as the government-imposed border and other restrictions continue to ease, rising employment, immigration and students will drive demand for rental housing.

The federal government has reiterated its commitment to immigration and has increased its targets for new permanent residents over the next three years in order to catch up on the immigration that was delayed in 2020 and the first half of 2021 due to border closures. The federal government's new targets, along with natural growth, are expected to push net population growth to more than 500,000 people per year for the next three years, returning to historically high population growth last reached in 2019 before the onset of the pandemic.

The favourable supply-demand fundamentals that existed prior to the pandemic have not gone away. With the rising cost of home ownership, the affordability gap between rental housing and home ownership has widened in most Canadian cities. The supply of new housing remains constrained and inelastic to housing demand and population growth. As population growth increases in 2021 and beyond, rental housing demand is expected to strengthen and occupancy rates will gradually improve. However, Management still expects lower-than-normal occupancy for the remainder of 2021.

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, August 13, 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:

Minto Apartment REIT Q2 Earnings Call

A replay of the call will be available until Friday, August 20, 2021. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 364492 #). 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, NOI and FFO are important measures of operating performance, Debt-to-GBV is an important measure of financial leverage and NAV is an important measure of the value of the REIT. 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, cash flow from operating activities or unitholders' equity as calculated in accordance with IFRS. The IFRS measurement most directly comparable to NOI, FFO and AFFO is net income. The IFRS measure most directly comparable to NAV is unitholders' equity. See the Q2 2021 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 Real Estate Investment Trust

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