Minto Apartment REIT Reports Second Quarter 2020 Financial Results and Announces Distribution Increase

August 11, 2020 From Minto Apartment REIT

— Board of Trustees approves 3.4% increase to monthly distribution, reflecting strong AFFO1 growth and conservative AFFO1 payout ratio —

OTTAWA, ON, Aug. 11, 2020 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the second quarter ("Q2 2020") and six months ended June 30, 2020. The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q2 2020 and the six months ended June 30, 2020 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.

Q2 2020 Highlights

  • Total revenue was $31.3 million, an increase of 26.3% from the three months ended June 30, 2019 ("Q2 2019"); same property revenue2 of $22.6 million decreased 0.9% from Q2 2019; same property revenue2 excluding furnished suites was $20.8 million, an increase of 3.1% from Q2 2019;

  • Net Operating Income ("NOI")1 was $20.0 million, an increase of 26.8% from Q2 2019; same property NOI1,2 of $14.2 million decreased 1.7% from Q2 2019; same property NOI1,2 excluding furnished suites was $13.2 million up 4.5% from Q2 2019;

  • NOI1 margin was 63.9%, an increase of 20 basis points ("bps") from Q2 2019; same property NOI1,2 margin was 62.9%, 40 bps lower than Q2 2019; same property NOI1,2 margin excluding furnished suites was 63.5%, 90 bps higher than Q2 2019;

  • Net income and comprehensive income was $12.1 million, compared to $48.8 million in Q2 2019;

  • Funds from Operations ("FFO")1 increased by 29.6% to $12.7 million, compared to $9.8 million in Q2 2019; FFO1 per unit3 declined by 0.1% to $0.2144 per unit3, compared to $0.2146 in Q2 2019;

  • Adjusted Funds from Operations ("AFFO")1 increased by 31.4% to $11.1 million, compared to $8.4 million in Q2 2019; AFFO1 per unit3 increased by 1.3% to $0.1879, compared to $0.1855 in Q2 2019;

  • The REIT declared distributions during the quarter totaling $0.1100 per unit3 compared to $0.1025 per unit3 in Q2 2019, an increase of 7.3%;

  • The Q2 2020 AFFO1 payout ratio was 58.5%, compared to 55.2% in Q2 2019;

  • Occupancy of available unfurnished suites as at June 30, 2020 was 97.2%, compared to 98.7% as at June 30, 2019; same property occupancy2 of available unfurnished suites as at June 30, 2020 was 96.9%, compared to 99.0% as at June 30, 2019;

  • Average monthly rent as at June 30, 2020, excluding furnished and/or unoccupied suites, was $1,609, an increase of 11.8% compared to $1,439 as at June 30, 2019; average monthly rent for the same property portfolio2, excluding furnished and/or unoccupied suites, was $1,511 as at June 30, 2020, an increase of 5.4% compared to $1,434 as at June 30, 2019; and

  • Debt to Gross Book Value ("Debt-to-GBV")1 as at June 30, 2020 was 39.5%, compared to 39.3% at the end of 2019.

_________________________________________

1 NOI, FFO, AFFO 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 4,552 suites that are wholly owned by the REIT for equivalent periods in 2020 and 2019. A total of 239 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

"Our business has proven to be highly resilient during an unprecedented economic and health crisis." said Michael Waters, the REIT's Chief Executive Officer and President. "While our second quarter results were impacted by the sudden drop in demand for furnished suites due to COVID-19, we still generated 9.1% rent growth on new leases signed for unfurnished suites. We are continuing to collect the vast majority of our monthly rent and occupancy has remained high. We are also maintaining a strong financial position throughout this period of uncertainty, with current liquidity of $193.4 million. The distribution increase announced today reflects our strong track record of AFFO1 growth to date, as well as our Trustees' confidence that we will continue to execute on our strategy and deliver strong performance for unitholders going forward."

Distribution Increase

The REIT is pleased to announce that its Board of Trustees has approved a 3.4% increase to its cash distributions, raising the monthly unitholder distribution from an annualized rate of $0.4400 per unit3 to $0.4550 per unit3. This measured distribution increase reflects the REIT's strong AFFO1 growth, relatively low AFFO1 payout ratio and strong liquidity position. The increase will be effective for the REIT's August 2020 cash distribution, which will be paid on September 15, 2020 to unitholders of record as at August 31, 2020.


COVID-19 Response and Impact on the REIT

COVID-19 continues to impact the REIT's business and the provinces in which it operates. The REIT's priority remains the health and safety of its residents, employees, communities and other stakeholders. The REIT has taken the necessary steps and precautions to mitigate the spread of COVID-19 and to continue to prioritize good health for all its stakeholders.

The vast majority of residents have continued to pay their rent on time during the pandemic and rent collection has been consistent with pre-pandemic cycles. Regardless, the REIT recognizes the burden placed on many residents due to the decline of economic activity in Canada. Accordingly, it has not implemented any rent increases that were scheduled to come into effect during the months of April, May, June and July of 2020. As previously disclosed, the REIT offered a deferred rental payment plan for residents experiencing payment difficulties that allowed residents to defer a portion of their rent for April, May and June of 2020. The majority of the tenants on deferred rental payment plans have made the required payments.

Since its inception, the REIT has generated incremental income by leasing a proportion of its suites on a furnished basis. The proportion of the portfolio offered on a furnished basis varies as a function of demand and has been as high as 5.5% and was 3.3% at June 30, 2020. The demand for furnished suites has been significantly impacted by the COVID-19 crisis due to unprecedented reductions in travel and corporate relocations. Accordingly, the REIT deployed a strategy to transition a portion of its furnished suite inventory to unfurnished. The REIT's furnished suite count declined by eight suites during Q2 2020 and the REIT will continue to reduce its furnished suite inventory through the balance of the year, while exploring opportunities to accelerate repositioning projects by capitalizing on the available suites.

Provincial restrictions on construction activities in Ontario and Quebec were lifted during Q2 2020. The REIT has resumed new value-enhancing capital expenditures in these provinces and continues to make capital improvements and repairs to its properties.

The REIT's suite turnover rate for the trailing twelve month period ended June 30, 2020 was 22%, which was below its historical average. The REIT expects that this turnover rate may continue below historical averages during the COVID-19 crisis and recovery period, but the decline is expected to be temporary.

Growth Initiatives

During Q2 2020, the REIT continued to generate significant organic growth through gain-to-lease activities. The REIT signed 339 new leases of unfurnished suites during the quarter at average monthly rents that were 9.1% higher than the expiring rent, resulting in an increase in annualized revenue of approximately $0.5 million.

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 12.3%, representing future annualized embedded potential revenue of approximately $13.4 million. The embedded potential revenue opportunity declined from approximately $14.7 million reported as at March 31, 2020, due to gains realized during Q2 2020 and revised market lease rate estimates.

The REIT also continued to productively deploy capital through its repositioning program in Q2 2020, repositioning a total of 50 suites across its portfolio. The repositioning program was impacted by restrictions imposed by the Ontario and Quebec provincial governments in response to the COVID crisis during Q2 2020. The REIT has 1,989 suites remaining to be repositioned at the following properties: Minto Yorkville, Leslie York Mills, High Park Village, Carlisle, Castle Hill, Rockhill and the Edmonton portfolio. The REIT has temporarily suspended repositioning programs at its three Edmonton properties until rental market conditions improve in Alberta. The REIT is developing repositioning plans for the recently acquired Haddon Hall and Le 4300 properties in Montreal. It has also completed renovations for test suites at the Castleview and Skyline properties in Ottawa and is evaluating the repositioning potential of these properties. In addition, the reduction in demand for furnished suites due to COVID-19 has presented an opportunity to accelerate repositioning at the Roehampton property in Toronto by capitalizing on the availability of suites. The REIT will be developing test suites at the Roehampton property in the fall with the intention to reposition the suites in Q1 2021.

Financial Summary





Three months ended June 30,

Six months ended June 30,

($000's except per unit amounts)

2020

2019

Variance

2020

2019

Variance

Revenue from investment properties

$

31,319

$

24,796

26.3

%

$

62,844

$

46,931

33.9

%

Property operating costs

5,714

4,504

(26.9)

%

11,497

8,734

(31.6)

%

Property taxes

3,465

2,649

(30.8)

%

6,885

5,047

(36.4)

%

Utilities

2,116

1,857

(13.9)

%

4,949

4,054

(22.1)

%

NOI1

$

20,024

$

15,786

26.8

%

$

39,513

$

29,096

35.8

%

NOI1 margin (%)

63.9

63.7

20 bps


62.9

62.0

90 bps


Same property revenue2

$

22,615

$

22,830

(0.9)

%

$

45,436

$

44,965

1.0

%

Same property NOI1,2

14,223

14,462

(1.7)

%

28,160

27,772

1.4

%

Same property NOI1,2 margin (%)

62.9

63.3

(40) bps


62.0

61.8

20 bps


Same property revenue2 excluding furnished suites

$

20,790

$

20,168

3.1

%

$

41,582

$

39,961

4.1

%

Same property NOI1,2 excluding furnished suites

13,193

12,623

4.5

%

$

25,918

$

24,468

5.9

%

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

63.5

62.6

90 bps


62.3

61.2

110 bps


Net income and comprehensive income

$

12,054

$

48,816

(75.3)

%

$

99,998

$

30,147

231.7

%

FFO1

$

12,659

$

9,769

29.6

%

$

24,776

$

17,087

45.0

%

FFO1 per unit3

$

0.2144

$

0.2146

(0.1)

%

$

0.4196

$

0.4155

1.0

%

AFFO1

$

11,097

$

8,445

31.4

%

$

21,655

$

14,545

48.9

%

AFFO1 per unit3

$

0.1879

$

0.1855

1.3

%

$

0.3668

$

0.3537

3.7

%

Distributions declared per unit3

$

0.1100

$

0.1025

7.3

%

$

0.2200

$

0.2050

7.3

%

AFFO1 payout ratio

58.5

55.2

330 bps


60.0

58.0

200 bps



Q2 2020 Operating Results

Revenue in Q2 2020 totaled $31.3 million, an increase of 26.3% from $24.8 million in Q2 2019. The increase was primarily attributable to the contribution from the five property acquisitions the REIT completed subsequent to March 31, 2019, as well as higher rental rates, partially offset by decreased revenue from furnished suites as a result of lower occupancy and demand for furnished suites due to the COVID-19 pandemic.

As at June 30, 2020, occupancy in the REIT's available unfurnished suite portfolio was 97.2% and average monthly rent was $1,609 per occupied unfurnished suite. That compares to occupancy of 98.7% and average monthly rent of $1,439 per occupied unfurnished suite as at June 30, 2019.

NOI1 for Q2 2020 totaled $20.0 million, representing 63.9% of revenue, an increase of 26.8% from $15.8 million, or 63.7% of revenue, in Q2 2019. The increase reflects the contribution from the property acquisitions completed subsequent to March 31, 2019, comprising a total of 2,691 suites (1,535 suites at the REIT's proportionate share), partially offset by lower revenue from furnished suites.

Same property revenue2 declined 0.9% to $22.6 million in Q2 2020, compared to $22.8 million in Q2 2019, primarily reflecting decreased revenue from furnished suites, partially offset by higher rents achieved on new leases, higher revenue earned from repositioned suites, and increased parking revenue due to new initiatives such as paid visitor parking. Same property NOI1,2 decreased 1.7% in Q2 2020 to $14.2 million, or 62.9% of revenue, compared to $14.5 million, or 63.3% of revenue, in Q2 2019. The decline in same property NOI1,2 reflects the lower same property revenue2 and increases in insurance premiums, marketing expenses and property taxes. Same property NOI1,2 excluding furnished suites increased 4.5% to $13.2 million, or 63.5% of revenue, compared to $12.6 million, or 62.6% of revenue, in Q2 2019. The increase primarily reflects higher rental rates. Overall, the unfurnished suites have performed well despite the impact of COVID-19.

FFO1 in Q2 2020 was $12.7 million, or $0.2144 per unit3, compared to $9.8 million, or $0.2146 per unit3, in Q2 2019. The 29.6% increase in FFO1 in Q2 2020 primarily reflected the positive NOI1 variance. AFFO1 was $11.1 million in Q2 2020, or $0.1879 per unit3, compared to $8.4 million, or $0.1855 per unit3, in Q2 2019. The 31.4% positive variance in AFFO1 for Q2 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 decline in FFO1 per unit3 in Q2 2020 reflect short-term dilution from two equity offerings completed subsequent to Q2 2019 that funded property acquisitions.

The REIT declared cash distributions totaling $0.1100 per unit3 for Q2 2020, representing an AFFO1 payout ratio of 58.5%. Cash distributions of $0.1025 per unit3 were declared in Q2 2019, representing an AFFO1 payout ratio of 55.2%.

The REIT reported net income and comprehensive income for Q2 2020 of $12.1 million, compared to $48.8 million in Q2 2019. The negative variance in Q2 2020 was primarily attributable to a fair value loss on Class B LP Units of Minto Apartment Limited Partnership of $9.1 million in Q2 2020, compared to a fair value gain of $30.9 million in Q2 2019, due to changes in the trading price of the REIT units, partially offset by higher NOI1 in Q2 2020. Fair value gain on investment properties in Q2 2020 was $11.4 million, compared to $10.3 million in Q2 2019 driven mainly by NOI growth, while capitalization rates remained steady.

Operating Results for Six Months Ended June 30, 2020

Revenues for the six months ended June 30, 2020 totaled $62.8 million, an increase of 33.9% from $46.9 million in the six months ended June 30, 2019, primarily due to the property acquisitions the REIT completed subsequent to March 31, 2019, as well as higher rental rates, partially offset by decreased revenue from furnished suites.

NOI1 for the six months ended June 30, 2020 was $39.5 million, or 62.9% of revenue, an increase of 35.8% from $29.1 million, or 62.0% of revenue, in the six months ended June 30, 2019. The increase reflects the contribution from the property acquisitions completed subsequent to March 31, 2019, and higher NOI1 for the same property portfolio2, partially offset by lower revenue from furnished suites.

Same property revenue2 was $45.4 million for the six months ended June 30, 2020, an increase of 1.0% compared to $45.0 million in the six months ended June 30, 2019. The increase was primarily attributable to higher revenue achieved from new leases and repositioned suites, and an increase in parking revenue due to new initiatives like paid visitor parking, partially offset by lower revenue from furnished suites. Same property NOI1,2 for the six months ended June 30, 2020 totaled $28.2 million, or 62.0% of revenue, an increase of 1.4% compared to $27.8 million, or 61.8% of revenue, for the six months ended June 30, 2019. The increase was primarily due to higher same property revenue2, partially offset by increases in insurance premiums, marketing expenses and property taxes.

FFO1 for the six months ended June 30, 2020 increased 45.0% to $24.8 million, or $0.4196 per unit3, compared to $17.1 million or $0.4155 per unit3, for the six months ended June 30, 2019. The increase in FFO1 primarily reflected the positive NOI1 variance. AFFO1 for the six months ended June 30, 2020 increased 48.9% to $21.7 million, or $0.3668 per unit3, compared to $14.5 million, or $0.3537 per unit3, for the six months ended June 30, 2019. The positive AFFO1 variance for the six months ended June 30, 2020 primarily reflected the higher FFO1, partially offset by an increase in the maintenance capital expenditure reserve.

The REIT declared cash distributions totaling $0.2200 per unit3 for the six months ended June 30, 2020, representing an AFFO1 payout ratio of 60.0%. Cash distributions of $0.2050 per unit3 were declared in the six months ending June 30, 2019, representing an AFFO1 payout ratio of 58.0%.

Net income and comprehensive income for the six months ended June 30, 2020 was $100.0 million, compared to $30.1 million for the six months ended June 30, 2019. The increase in net income was primarily attributable to a fair value gain on Class B LP Units of Minto Apartment Limited Partnership of $74.0 million for the six months ended June 30, 2020, due to changes in the trading price of the REIT units. Fair value gain on investment properties for the six months ended June 30, 2020 was $8.6 million, compared to $23.8 million for the six months ended June 30, 2019. The decrease was primarily due to lower forecast NOI, a higher capital expenditure reserve and a COVID-19 reserve for the near term impacts from the pandemic.

Balance Sheet

As of June 30, 2020, the REIT had total debt outstanding of $823.8 million, with a weighted average interest rate of 3.07% and a weighted average term to maturity of 5.67 years for its fixed-rate term debt. The Debt-to-GBV1 ratio was 39.5%.

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, August 12, 2020 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:

https://produceredition.webcasts.com/starthere.jsp?ei=1342973&tp_key=311e0a1c22

A replay of the call will be available until Wednesday, August 19, 2020. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 227536 #). 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 "Risks and Uncertainties" in the REIT's Management Discussion & Analysis dated August 11, 2020 (the "Q2 2020 MD&A"), 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 REIT's Q2 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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