Minto Apartment REIT Reports 2021 Third Quarter Financial Results and Announces Distribution Increase

November 9, 2021 From Minto Apartment REIT

— 4.4% distribution increase reflects positive business outlook —

OTTAWA, ON, Nov. 9, 2021 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the third quarter ("Q3 2021") and nine months ended September 30, 2021. The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q3 2021 and the nine months ended September 30, 2021 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.

The REIT is also pleased to announce that its Board of Trustees has approved a 4.4% increase to its cash distributions, raising the monthly unitholder distribution from an annualized rate of $0.455 per unit2 to $0.475 per unit2. The distribution increase reflects the REIT's strong growth prospects and high level of confidence in its business model, long-term strategy, and overall business outlook. The increase will be effective for the REIT's November 2021 cash distribution, which will be paid on December 15, 2021 to unitholders of record as at November 30, 2021.

Q3 2021 Highlights

  • The REIT entered into a record 555 new leases, a 38% increase compared to 403 new leases signed in the third quarter ended September 30, 2020 ("Q3 2020");
  • The REIT achieved an average rental rate on the new leases that was 4.4% higher than the expiring rents;
  • Average monthly rent, excluding furnished and unoccupied suites, at September 30, 2021 was $1,651, an increase of 2.4% compared to $1,613 as at September 30, 2020, and a sequential increase of 0.7% compared to $1,640 as at June 30, 2021;
  • Average occupancy of unfurnished suites was 92.9%, compared to 94.0% in Q3 2020 and 91.5% in the second quarter of 2021 ("Q2 2021"). Q3 2021 was the second consecutive sequential quarter of improved occupancy for the REIT;
  • The REIT recorded a $34.7 million fair value gain on its investment properties in Q3 2021 primarily on the basis of compressed capitalization rates that reflect strong investment demand and pricing for multi-residential properties;
  • Total revenue was $31.2 million, in line with Q3 2020;
  • Net Operating Income ("NOI")1 was $19.4 million, compared to $20.2 million in Q3 2020;
  • Funds from Operations ("FFO")1 were $12.5 million, or $0.2109 per unit2, compared to $13.2 million, or $0.2233 per unit2, in Q3 2020;
  • Adjusted Funds from Operations ("AFFO")1 were $10.9 million, or $0.1842 per unit2, compared to $11.6 million, or $0.1968 per unit2, in Q3 2020;
  • Net income and comprehensive income was $80.9 million, compared to $56.6 million in Q3 2020;
  • The REIT continued to productively deploy capital through its repositioning program, earning an annualized 8.9% return on the capital invested in the repositioning of 120 suites across its portfolio. This was the highest number of suites that the REIT has repositioned in any quarter;
  • The REIT maintained a strong balance sheet, with Debt to Gross Book Value ("Debt-to-GBV")1 as at September 30, 2021 of 37.9%, compared with 38.6% at the end of 2020; and
  • Total available liquidity was $125.6 million as at September 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.

Subsequent Events

  • On October 20, 2021, the REIT announced that it agreed to acquire Le Hill-Park, a 20-storey multi-residential rental property in downtown Montreal comprising 261 suites. The purchase price is approximately $80.1 million. Average sitting rents at Le Hill-Park are approximately 20% below market rents, and the property provides a significant repositioning opportunity, as only 72 of the 261 suites have undergone a modernization program.
  • On October 29, 2021, the REIT completed a bought deal equity offering in which it issued 3,795,000 trust units of the REIT from treasury at a price of $22.85 per Unit, raising gross proceeds of approximately $87 million. The REIT intends to use the net proceeds of the offering to fund its equity requirement for the acquisition of Le Hill-Park in downtown Montreal, the previously announced convertible development loans on the Beechwood project in Ottawa, Ontario and Phase I of Lonsdale Square in North Vancouver, British Columbia and to pay down a portion of the amount outstanding on its credit facility providing financial capacity for future acquisitions.
  • The REIT has received a commitment from CMHC to provide construction financing for the Richgrove development project in Toronto. The funding commitment was secured through CMHC's Rental Construction Financing Initiative. Enabling work at Richgrove has commenced and construction is expected to start later this month, with stabilization anticipated in the first quarter of 2026.

__________________

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.

"Urban rental market conditions continued to strengthen during the third quarter," said Michael Waters, the REIT's Chief Executive Officer and President. "The signing of a record 555 leases in Q3 2021 and the steady increase in our move-ins relative to move-outs confirms that view. Meanwhile, we made positive progress in our intensification and development initiatives, and recently agreed to acquire an attractive property in Montreal, our fourth acquisition in the city. The distribution increase we announced today highlights the positive business outlook shared by our management team and Board of Trustees. While steadily increasing distributions is a key part of our long-term strategy, we are also committed to maintaining a conservative AFFO1 payout ratio, allowing us to continue to reinvest capital to fuel future growth."

Organic Growth Initiatives

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 6.6% as at September 30, 2021, representing future annualized embedded potential revenue of approximately $7.3 million. That compares to an estimated annualized revenue growth opportunity of $6.3 million as at June 30, 2021, and $12.7 million as at September 30, 2020. The reduced gain-to-lease potential reflects the impact of rent discounts offered in the Toronto, Ottawa and Montreal markets during Q2 2021 and Q3 2021. This resulted in lower market rents for suites in these cities. The REIT expects to gradually remove these discounts as occupancy levels stabilize. Management expects that the REIT will be able to realize a significant portion of the gain-to-lease potential over the next three to five years as residents leave and suites are re-leased at market rents.

The REIT continued to make progress with its repositioning program in Q3 2021, repositioning a total of 120 suites across its portfolio. This was the highest volume of suite repositionings that the REIT has completed in a quarter. The annualized revenue gains realized on the suites that were repositioned in Q3 2021 generated an average 8.9% return on investment. The REIT has a total of 2,249 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 Q3 2021, 28 suites were leased after completing enhanced turns, and the annualized rental rate increases generated returns in excess of 8% on cost.

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. The REIT has the option to purchase these properties at stabilization at a 5% discount to their then-appraised fair value. 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 1,570 suites (a 22% increase from the REIT's current suite count). Updated information on these opportunities is available in the REIT's Q3 2021 MD&A.

Financial Summary

($000's except per unit amounts)

Three months ended

September 30,


Nine months ended

September 30,

2021

2020

Variance


2021

2020

Variance

Revenue from investment properties

$

31,234


$

31,155


0.3

%


$

91,118


$

93,999


(3.1)

%

Property operating costs

6,228


5,582


(11.6)

%


17,791


17,079


(4.2)

%

Property taxes

3,436


3,299


(4.2)

%


9,814


10,184


3.6

%

Utilities

2,165


2,113


(2.5)

%


7,206


7,062


(2.0)

%

NOI1

$

19,405


$

20,161


(3.7)

%


$

56,307


$

59,674


(5.6)

%

NOI1 margin (%)

62.1

%

64.7

%

(260) bps


61.8

%

63.5

%

(170) bps

Net income and comprehensive
income

$

80,928


$

56,630


42.9

%


$

69,228


$

156,628


(55.8)

%

FFO1

$

12,453


$

13,183


(5.5)

%


$

35,285


$

37,959


(7.0)

%

FFO1 per unit2

$

0.2109


$

0.2233


(5.6)

%


$

0.5976


$

0.6429


(7.0)

%

AFFO1

$

10,883


$

11,619


(6.3)

%


$

30,578


$

33,274


(8.1)

%

AFFO1 per unit2

$

0.1842


$

0.1968


(6.4)

%


$

0.5179


$

0.5635


(8.1)

%

Distribution per unit2

$

0.1138


$

0.1125


1.2

%


$

0.3413


$

0.3325


2.6

%

AFFO1 payout ratio

61.7

%

57.2

%

(450) bps


65.9

%

59.0

%

(690) bps

Q3 2021 Operating Results

Revenue in Q3 2021 totalled $31.2 million, similar to Q3 2020. Revenue from unfurnished suites was inline with Q3 2020, as higher average rents were offset by lower occupancy. In addition, higher revenue from furnished suites was offset by lower ancillary revenue.

Average occupancy of unfurnished suites was 92.9% in Q3 2021, compared to 91.5% in Q2 2021, and 94.0% in Q3 2020. The increase relative to Q2 2021 reflects improving market conditions and the use of special pricing discounts.

NOI1 for Q3 2021 totalled $19.4 million, representing 62.1% of revenue, compared to $20.2 million, or 64.7% of revenue, in Q3 2020. The lower NOI1 in Q3 2021 reflected increased property operating costs, property taxes and utilities expense.

FFO1 in Q3 2021 was $12.5 million, or $0.2109 per unit2, compared to $13.2 million, or $0.2233 per unit2, in Q3 2020. The lower FFO1 in Q3 2021 primarily reflected the negative NOI1 variance. AFFO1 in Q3 2021 was $10.9 million, or $0.1842 per unit2, compared to $11.6 million, or $0.1968 per unit2, in Q3 2020. The reduction in AFFO1 for Q3 2021 primarily reflected the lower FFO1.

The REIT reported net income and comprehensive income of $80.9 million in Q3 2021, an increase of 42.9% compared to $56.6 million in Q3 2020. The positive variance was primarily attributable to an increased fair value gain on investment properties of $34.7 million in Q3 2021, compared to $8.8 million in Q3 2020. The increase was attributable to compressed capitalization rates, reflecting strong investment demand and pricing for multi-residential properties.

The REIT paid cash distributions of $0.1138 per unit2 for Q3 2021, an increase of 1.2% compared to Q3 2020 and representing an AFFO1 payout ratio of 61.7%. Cash distributions of $0.1125 per unit2 were paid in Q3 2020, representing an AFFO1 payout ratio of 57.2%.

Balance Sheet

As of September 30, 2021, the REIT had total debt outstanding of $881.0 million, with a weighted average interest rate of 2.90% and a weighted average term to maturity of 5.17 years for its fixed-rate term debt. The Debt-to-GBV1 ratio was 37.9%. The REIT's NAV1 per unit2 at the end of Q3 2021 was $23.99, an increase of 7.8% from $22.26 at the end of 2020.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $125.6 million as at September 30, 2021, with a liquidity ratio (total liquidity/total debt) of 14.3%.

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 Wednesday, November 10, 2021 at 11:00 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 Q3 Earnings Call

A replay of the call will be available until Wednesday, November 17, 2021. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 742256 #). 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, develop, and operate 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 Q3 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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