Minto Apartment REIT Reports 2022 Second Quarter Financial Results

·20 min read

— Strong growth in occupancy and gain-to-lease as the REIT's performance returns to pre-pandemic levels —

OTTAWA, ON, Aug. 9, 2022 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the second quarter and six months ended June 30, 2022 ("Q2 2022" and "YTD 2022", respectively). The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q2 2022 and YTD 2022 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.1

"Our financial performance strengthened in the second quarter, supported by steadily improving market conditions. Occupancy continued to increase and we achieved an average gain of 12.1% on new leases signed," said Michael Waters, the REIT's Chief Executive Officer. "As the negative impact of COVID-19 on urban rental markets dissipates, we believe the outlook for our business is very strong. Macro trends like increased immigration and strong interest in Canada from foreign students continue to drive population growth and the demand for housing. Rising interest rates have increased the cost of home ownership and further widened the affordability gap between owning and renting a home, making renting an increasingly attractive option."

"While the current capital market environment is challenging, we are continuing our efforts to maximize revenue, optimize occupancy, manage controllable operating expenses, and maintain a strong liquidity position," Mr. Waters continued. "In that regard, we have initiated a capital recycling program under which we may divest of certain assets and deploy the proceeds to fund higher-growth opportunities within our portfolio. We also recently increased the amount available under our revolving credit facility to $300 million, ensuring that we maintain substantial financial flexibility."

_________________________

1  This news release contains certain Non-IFRS and other financial measures. Refer to "Non-IFRS and Other Financial Measures" in this news release for a complete list of these measures and their meaning.


Q2 2022 Highlights

  • The REIT executed 667 new leases, achieving an average rental rate that was 12.1% higher than the expiring rents. As rental markets have strengthened, the gain to lease potential on sitting rents increased sequentially to 10.9% from 10.7% at the end of the first quarter of 2022 ("Q1 2022");

  • Average occupancy of unfurnished suites was 94.7%, a significant increase from 91.5% in the second quarter ended June 30, 2021 ("Q2 2021");

  • Total revenue was $35.5 million, an increase of 18.8% compared to Q2 2021; total revenue for the Same Property Portfolio2 was $32.9 million, an increase of 10.1% compared to Q2 2021;

  • Net Operating Income ("NOI") was $21.8 million, an increase of 14.8% compared to Q2 2021; NOI for the Same Property Portfolio was $20.2 million, an increase of 6.4% compared to Q2 2021. Same Property Portfolio NOI growth would have been even higher at 9.9% with the exclusion of the impacts of a one-time property tax refund received in Q2 2021 pertaining to certain Ottawa properties of approximately $600 thousand;

  • Funds from Operations ("FFO") increased by 14.6% to $13.7 million, compared to $11.9 million in Q2 2021; FFO per unit increased by 3.9% to $0.2100, compared to $0.2022 in Q2 2021;

  • Adjusted Funds from Operations ("AFFO") increased by 15.5% to $12.0 million, compared to $10.4 million in Q2 2021; AFFO per unit increased by 4.7% to $0.1840, compared to $0.1757 in Q2 2021;

  • Net income and comprehensive income increased to $183.5 million, compared to $8.7 million in Q2 2021;

  • The REIT continued to productively deploy capital through its repositioning program, earning an annualized 8.6% return on the capital invested on the repositioning of 83 suites across its portfolio in Q2 2022;

  • On April 11, 2022, the REIT announced agreements to acquire a 28.35% managing interest in 39 Niagara Street ("Niagara West") in downtown Toronto, and a 100% interest in 220 4th Avenue SW ("The International") in downtown Calgary, for a total purchase price of $201 million. The two premium residential properties comprise a total of 753 suites. The acquisition of Niagara West closed on April 22, 2022 and the acquisition of The International closed on May 6, 2022;

  • On June 30, 2022, the REIT increased the total commitment of its revolving credit facility from $200 million to $300 million, enabling it to maintain financial flexibility and continue to capitalize on opportunities to drive long term NAV growth. In addition, the maturity date was extended by one year to July 3, 2025; and

  • Net asset value ("NAV") per unit was $24.24 as at June 30, 2022, an increase of 1.0% from $24.00 as at December 31, 2021. NAV per unit declined slightly from $24.33 as at March 31, 2022, reflecting a slightly higher weighted average capitalization rate in certain markets mostly offset by an increase in NOI across the portfolio.

______________________________

2 Same Property Portfolio consists of 29 multi-residential properties both wholly and jointly owned by the REIT for comparable periods in Q2 2022 and Q2 2021.


Subsequent Event

On July 19, 2022, the REIT announced that the Toronto Stock Exchange had accepted its notice to make a normal course issuer bid ("NCIB") for a portion of its Units as appropriate opportunities arise from time to time. The NCIB will be active from July 21, 2022 to July 20, 2023 and permits the REIT to acquire up to 3,847,284 Units, representing approximately 10% of the REIT's public float.

Financial Summary

($000's except per unit and per suite amounts)

Three months ended June 30,


Six months ended June 30,

2022

2021

Variance


2022

2021

Variance

Revenue from investment properties

$   35,510

$   29,885

18.8 %


$   68,036

$   59,884

13.6 %

Property operating costs

7,260

5,792

(25.3) %


13,740

11,563

(18.8) %

Property taxes

3,709

2,870

(29.2) %


7,374

6,378

(15.6) %

Utilities

2,702

2,205

(22.5) %


6,297

5,041

(24.9) %

NOI

$   21,839

$   19,018

14.8 %


$   40,625

$   36,902

10.1 %

NOI margin (%)

61.5 %

63.6 %

(210) bps


59.7 %

61.6 %

(190) bps

Revenue - Same Property Portfolio

$   32,918

$   29,885

10.1 %


$   64,583

$   59,884

7.8 %

NOI - Same Property Portfolio

20,237

19,018

6.4 %


38,592

36,902

4.6 %

NOI margin (%) - Same Property Portfolio

61.5 %

63.6 %

(210) bps


59.8 %

61.6 %

(180) bps

Net income (loss) and comprehensive income (loss)

$ 183,537

$     8,727



$ 218,177

$  (11,700)


FFO

13,680

11,941

14.6 %


$   25,659

$   22,832

12.4 %

FFO per unit

0.2100

0.2022

3.9 %


$   0.4008

$   0.3867

3.6 %

AFFO

11,983

10,373

15.5 %


$   22,331

$   19,695

13.4 %

AFFO per unit

0.1840

0.1757

4.7 %


$   0.3489

$   0.3336

4.6 %

Distribution per unit

0.1187

0.1138

4.3 %


$   0.2375

$   0.2275

4.4 %

AFFO payout ratio

65.2 %

64.8 %

(40) bps


68.4 %

68.2 %

(20) bps

Average monthly rent per suite

$     1,690

$     1,640

3.0 %


$      1,690

$      1,640

3.0 %

Average monthly rent per suite - Same Property Portfolio

$     1,695

$     1,640

3.4 %


$      1,695

$      1,640

3.4 %

Occupancy - average for period

94.69 %

91.50 %

319 bps


94.43 %

91.18 %

325 bps

Occupancy - average for period - Same Property Portfolio

94.80 %

91.50 %

330 bps


94.51 %

91.18 %

333 bps


Q2 2022 Operating Results

Revenue in Q2 2022 totalled $35.5 million, an increase of 18.8% from $29.9 million in Q2 2021. The increased revenue in Q2 2022 reflected higher occupancy, higher average rents and property acquisitions completed subsequent to Q2 2021. Same Property Portfolio revenue was $32.9 million, an increase of 10.1% from Q2 2021, reflecting the improved occupancy and average monthly rent.

Average monthly rent at the end of Q2 2022 was $1,690, an increase of 3.0% compared to $1,640 as the end of Q2 2021. Average monthly rent for the Same Property Portfolio was $1,695 at the end of Q2 2022, an increase of 3.4% compared to the end of Q2 2021.

Average occupancy was 94.7% in Q2 2022, compared to 91.5% in Q2 2021 and 94.2% in Q1 2022. The significant year-over-year increase in occupancy reflected improving urban rental market conditions in the REIT's major markets.

Operating expenses were 25.8% higher (16.7% for the Same Property Portfolio) in Q2 2022 compared to Q2 2021, reflecting inflationary pressures and acquisitions. In addition, property taxes were higher in Q2 2022 due to refunds received in Q2 2021 relating to successful property tax appeals for prior years. The REIT continues to evaluate opportunities for operational efficiencies and cost reductions.

NOI for Q2 2022 totalled $21.8 million, representing 61.5% of revenue, an increase of 14.8% compared to $19.0 million, or 63.6% of revenue, in Q2 2021. Same Property Portfolio NOI for Q2 2022 was $20.2 million, representing 61.5% of revenue, an increase of 6.4% compared to $19.0 million, or 63.6% of revenue, in Q2 2021.The increase in NOI in Q2 2022 reflected higher revenue, partially offset by higher operating expenses as noted above. Same Property Portfolio NOI growth would have been even higher at 9.9% and Q2 2021 NOI margin would have been 61.6% excluding the impacts of a one-time property tax refund received in Q2 2021 pertaining to certain Ottawa properties of approximately $600 thousand.

FFO in Q2 2022 increased 14.6% to $13.7 million, or $0.2100 per unit, compared to $11.9 million, or $0.2022 per unit, in Q2 2021. The higher FFO in Q2 2022 primarily reflected the positive NOI variance. AFFO in Q2 2022 was $12.0 million, or $0.1840 per unit, an increase of 15.5% compared to $10.4 million, or $0.1757 per unit, in Q2 2021. The increase in AFFO for Q2 2022 was primarily due to the higher FFO, partially offset by an increase in the maintenance capital expenditure reserve from the additions of Le Hill-Park, Niagara West and The International.

The REIT reported net income and comprehensive income of $183.5 million in Q2 2022, compared to $8.7 million in Q2 2021. The positive variance was primarily attributable to a fair value gain on Class B LP Units of Minto Apartment Limited Partnership (the "Partnership") of $172.8 million, compared to a fair value loss on Class B LP Units of $50.8 million in Q2 2021.

The REIT paid cash distributions of $0.1187 per unit for Q2 2022, an increase of 4.3% compared to Q2 2021 and representing an AFFO payout ratio of 65.2%. Cash distributions of $0.1138 per unit were paid in Q2 2021, representing an AFFO payout ratio of 64.8%.

Organic Growth Initiatives: Gain-to-Lease and Repositioning

The REIT signed 667 new leases in Q2 2022, realizing an average gain-to-lease of 12.1%. This resulted in an annualized incremental revenue gain of approximately $1.3 million. It was the highest quarterly gain-to-lease achieved by the REIT since the first quarter of 2020, reflecting the continued improvement in urban rental market conditions. By comparison, the REIT realized gains on new leases of 5.9% in Q2 2021 and 10.8% in Q1 2022. Significant gains were realized in all markets during Q2 2022. As the Canadian economy continued to recover from the negative impact of the COVID-19 pandemic, the REIT gradually reduced the use of promotions to drive occupancy.

Management estimates that the REIT holds embedded gain-to-lease potential in its unfurnished suite portfolio of 10.9% as at June 30, 2022, representing future annualized embedded potential revenue of approximately $14.0 million. That compares to embedded gain-to-lease potential of 5.8% and an estimated annualized revenue growth opportunity of $6.3 million as at June 30, 2021, and 10.7% or $12.5 million as at March 31, 2022. The embedded gain-to-lease potential is increasing as Canadian urban rental markets strengthen.

The REIT repositioned a total of 83 suites across its portfolio in Q2 2022. The annualized revenue gains realized on the repositioned suites generated an average annual unlevered return on investment of 8.6%. The REIT has a total of 2,172 suites remaining to be repositioned under its current program.

Property Development and Intensification

The REIT has entered into agreements to provide convertible development loans for the development of five properties: Fifth + Bank and Beechwood in Ottawa, Lonsdale Square in North Vancouver, 810 Kingsway in Vancouver, and University Heights in the Greater Victoria Area. The REIT has exclusive options to purchase each of these properties, or MPI's interest in the case of 810 Kingsway and University Heights, upon stabilization at 95% of their then-appraised fair values.

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.

Six of these eight opportunities are under construction and all eight projects combined have the potential to increase the REIT's suite count by 2,271 suites, a 27% increase from the REIT's current suite count. Updated information on these opportunities, including development timelines, is available in the REIT's Q2 2022 MD&A.

Capital Recycling Program

The REIT has initiated a capital recycling program in order to optimize its portfolio and redeploy capital into other higher growth opportunities. Under this program, management is exploring the sale of certain assets based on a number of factors including, but not limited to, future growth potential, pro forma geographic diversification, pro forma NOI margin and average age. The capital raised from any divestiture may be re-deployed into other attractive opportunities, which may include property developments, convertible development loans, suite repositionings, and unit repurchases under the REIT's NCIB program.

Balance Sheet

As of June 30, 2022, the REIT had total debt outstanding of $1.07 billion, with a weighted average interest rate on fixed rate debt of 2.90% and a weighted average term to maturity on fixed rate debt of 4.73 years. The Debt-to-GBV ratio was 39.5%. The REIT's NAV per unit as at June 30, 2022 was $24.24, an increase of 1.0% from $24.00 as at December 31, 2021.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $193.2 million as at June 30, 2022, with a liquidity ratio (total liquidity/total debt) of 18.1%.

Conference Call

Michael Waters, Chief Executive Officer, Julie Morin, Chief Financial Officer, and Jonathan Li, President and Chief Operating Officer, will host a conference call for analysts and investors on Wednesday, August 10, 2022 at 9:00 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 2022 Earnings Webcast

A replay of the call will be available until Wednesday, August 17, 2022. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 990814 #). 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 8, 2022, 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 and Other Financial Measures

This news release contains certain non-GAAP and other financial measures which are measures commonly used by publicly traded entities in the real estate industry. Management believes that these metrics are useful for measuring different aspects of performance and assessing the underlying operating and financial performance on a consistent basis. However, these measures do not have a standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should strictly be considered supplemental in nature and not a substitute for financial information prepared in accordance with IFRS. The REIT has adopted the guidance under NI 52-112 Non-GAAP and Other Financial Measures Disclosure for the purpose of this news release. These non-IFRS and other financial measures and ratios are defined below:

  • "FFO" is defined as IFRS consolidated net income adjusted for items such as unrealized changes in the fair value of investment properties, effects of puttable instruments classified as financial liabilities and changes in fair value of financial instruments and derivatives. FFO should not be construed as an alternative to net income or cash flows provided by or used in operating activities determined in accordance with IFRS. The REIT's method of calculating FFO may differ from other issuers' methods and, accordingly, may not be comparable to FFO reported by other issuers.

  • "FFO per unit" is calculated as FFO divided by the weighted average number of Units of the REIT and Class B LP Units of the Partnership outstanding over the period. The REIT regards FFO per unit as a key measure of operating performance.

  • "AFFO" is defined as FFO adjusted for items such as maintenance capital expenditures and straight-line rental revenue differences. AFFO should not be construed as an alternative to net income or cash flows provided by or used in operating activities determined in accordance with IFRS. The REIT's method of calculating AFFO may differ from other issuers' methods and, accordingly, may not be comparable to AFFO reported by other issuers. The REIT also uses AFFO in assessing its capacity to make distributions.

  • "AFFO per unit" is calculated as AFFO divided by the weighted average number of Units of the REIT and Class B LP Units of the Partnership outstanding over the period. The REIT regards AFFO per unit as a key measure of operating performance.

  • "AFFO payout ratio" is the proportion of the total distributions on Units of the REIT and Class B LP Units of the Partnership to AFFO. The REIT uses AFFO payout ratio in assessing its capacity to make distributions.

  • "Weighted average term to maturity on fixed rate debt" is calculated as the weighted average of the term to maturity on the outstanding fixed rate mortgages, a variable rate mortgage fixed through an interest rate swap and Class C LP Units of the Partnership.

  • "Weighted average interest rate on fixed rate debt" is calculated as the weighted average of the stated interest rates on the outstanding balances of fixed rate mortgages, a variable rate mortgage fixed through an interest rate swap and Class C LP Units of the Partnership.

  • "NOI" is defined as revenue from investment properties less property operating costs, property taxes and utilities (collectively referred to as "property operating expenses") prepared in accordance with IFRS. NOI should not be construed as an alternative to net income determined in accordance with IFRS. The REIT's method of calculating NOI may differ from other issuers' methods and, accordingly, may not be comparable to NOI reported by other issuers. It is a key input in determining the value of the REIT's properties.

  • "NOI margin" is defined as NOI divided by revenue from investment properties.

  • "Gross Book Value" is defined as the total assets of the REIT as at the balance sheet date.

  • "Debt-to-GBV" is calculated by dividing total interest-bearing debt consisting of fixed and variable rate mortgages, credit facilities, construction loans and Class C LP Units of the Partnership by Gross Book Value and is used as the REIT's primary measure of its leverage.

  • "NAV" is calculated as the sum of the value of REIT Unitholders' equity and Class B LP Units of the Partnership as at the balance sheet date.

  • "NAV per unit" is calculated by dividing NAV by the number of Units of the REIT and Class B LP Units of the Partnership outstanding as at the balance sheet date.

  • "total debt" is calculated as the sum of value of interest-bearing debt consisting of fixed and variable rate mortgages, credit facilities, construction loans and Class C LP Units of the Partnership.

  • "Total liquidity" is calculated as the sum of the undrawn balance under the revolving credit facility and cash.

  • "gain-to-lease" refers to the gap between rents achieved on new leases of unfurnished suites as compared to the expiring leases.

  • "gain-to-lease potential" refers to the gap between Management's estimate of monthly market rent and average monthly in-place rent per occupied unfurnished suite.

  • "average annual unlevered return" refers to the return on repositioning activities, and is calculated by dividing the average annual rental increase per suite after repositioning by the average repositioning cost per suite, excluding the impact of financing costs.

  • "average monthly rent" represents the average monthly rent for occupied unfurnished suites at the end of the period.

  • "average occupancy" is defined as the ratio of occupied unfurnished suites to the total unfurnished suites in the portfolio for the period.

Reconciliations of Non-IFRS Financial Measures and Ratios

FFO and AFFO

($000's except unit and per unit amounts)

Three months ended June 30,


Six months ended June 30,

2022

2021


2022

2021

Net income (loss) and comprehensive income (loss)

$           183,537

$                8,727


$           218,177

$            (11,700)

Distributions on Class B LP Units

3,058

2,590


5,762

5,180

Issuance costs on Class B LP Units

175


175

Fair value loss (gain) on:






Investment properties

2,325

(50,478)


(12,070)

(51,392)

Class B LP Units

(172,772)

50,775


(182,335)

81,286

Interest rate swap

(776)

3


(2,083)

(1,059)

Unit-based compensation

(1,867)

324


(1,967)

517

Funds from operations (FFO)

13,680

11,941


25,659

22,832

Maintenance capital expenditure reserve

(1,506)

(1,377)


(2,942)

(2,753)

Amortization of mark-to-market adjustments

(191)

(191)


(386)

(384)

Adjusted funds from operations (AFFO)

11,983

10,373


22,331

19,695

Distributions on Class B LP Units

3,058

2,590


5,762

5,180

Distributions on Units

4,758

4,127


9,516

8,253


$                7,816

$                6,717


$              15,278

$              13,433

AFFO payout ratio

65.2 %

64.8 %


68.4 %

68.2 %

Weighted average number of Units and Class B LP Units issued and outstanding

65,135,801

59,043,912


64,013,164

59,043,912

FFO per unit

$              0.2100

$              0.2022


$              0.4008

$              0.3867

AFFO per unit

$              0.1840

$              0.1757


$              0.3489

$              0.3336


NAV and NAV per unit

($000's except unit and per unit amounts)

As at

June 30, 2022

December 31, 2021

Net assets (Unitholders' equity)

$                     1,218,662

$                     1,010,001

Add: Class B LP Units

377,054

498,415

NAV

$                     1,595,716

$                     1,508,416

Number of Units and Class B LP Units

65,824,868

62,838,912

NAV per unit

$                             24.24

$                             24.00

 

SOURCE MINTO Real Estate Investment Trust

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