News & Press

Solid gain-to-lease performance despite impact of COVID-19

OTTAWA, ON, May 6, 2021 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the first quarter ended March 31, 2021 ("Q1 2021"). The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q1 2021 are available on the REIT's website at www.mintoapartments.com and at www.sedarplus.ca.

Q1 2021 Highlights

• The REIT entered into 470 new leases, a 33% increase compared to 353 new leases signed in the first quarter ended March 31, 2020 ("Q1 2020")
• The REIT achieved an average rental rate on the new leases that was 7.6% higher than the expiring rents
• The REIT recorded its highest ever average monthly rent as at March 31, 2021, excluding furnished and unoccupied suites, of $1,630, an increase of 0.4% compared to $1,623 in the fourth quarter ended December 31, 2020 ("Q4 2020") and an increase of 1.9% compared to $1,599 in Q1 2020;
• Total revenue was $30.0 million, compared to $31.5 million in Q1 2020;
• Net Operating Income ("NOI")¹ was $17.9 million, compared to $19.5 million in Q1 2020. More that half of the decline in NOI is attributable to three urban properties (185 Lyon, Minto Yorkville and 150 Roehampton);
• Funds from Operations ("FFO")¹ were $10.9 million, or $0.1845 per unit², compared to $12.1 million, or $0.2052 per unit^2, in Q1 2020;
• Adjusted Funds from Operations ("AFFO")¹ were $9.3 million, or $0.1579 per unit², compared to $10.6 million, or $0.1788 per unit², in Q1 2020;
• Net loss and comprehensive loss was $20.4 million, compared to net income and comprehensive income of $87.9 million in Q1 2020;
• The REIT continued to productively deploy capital through its repositioning program, earning an annualized 8.7% return on the capital invested in the repositioning of 46 suites across its portfolio in Q1 2021;
• The REIT maintained a strong balance sheet, with Debt to Gross Book Value ("Debt-to-GBV")¹ as at March 31, 2021 of 38.7%, similar to 38.6% at the end of 2020;
• Total available liquidity was $158.9 million as at March 31, 2021, enabling the REIT to maintain financial flexibility and continue to capitalize on opportunities to drive long term net asset value¹ growth;
• Subsequent to Q1 2021, on April 29, 2021, the REIT announced an agreement to provide up to $51.4 million in financing to a subsidiary of Minto Properties Inc. ("MPI") for the development of a 229-suite multi-residential property on Beechwood Avenue in the New Edinburgh neighbourhood of Ottawa, Ontario³. The addition of this project brings the REIT's development pipeline to 1,572 suites (a 22% incremental to the REIT's current suite count). MPI is a related party to the REIT. Accordingly the terms of the financing were reviewed, considered and approved by a committee of independent trustees of the REIT.

"Challenging turnover patterns continued to impact our financial results in the first quarter, as anticipated," said Michael Waters, the REIT's Chief Executive Officer and President. "However, we generated significantly stronger gain-to-lease compared to the fourth quarter of 2020, with positive rent growth upon turnover in all of our markets, while maintaining a strong liquidity position that protects us from further market volatility. We remain extremely confident that our rental markets will start to rebound in the second half of 2021 as vaccinations levels increase, immigration returns to target levels, work from home requirements are relaxed and post-secondary students return to in-person learning. The favourable supply-demand fundamentals of multi-residential real estate have not changed in the past year, and the affordability gap between rental housing and home ownership has expanded in most Canadian cities. Population growth is expected to resume post-pandemic, and the appeals of urban living should also return as cities open more fully for business and leisure activities."

COVID-19 Response and Impact on the REIT

During Q1 2021, the number of COVID-19 cases increased across Canada. Measures implemented to slow the spread of COVID-19, including border and business closures, have negatively impacted 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 0.46% in Q1 2021, only slightly above the average of 0.25% of revenues prior to the pandemic.

In Q1 2021, the REIT has provided an additional occupancy measure to supplement its previous disclosure and has made a change to its methodology for calculating and reporting occupancy to improve readers' ability to analyze its results. At the time of its initial public offering, the REIT elected to calculate occupancy based on a point in time calculation on the last day of the reporting period because this method provides the most useful information for readers to forecast future results. Due to changing turnover patterns resulting from COVID-19, the REIT's management believes supplementing end of period occupancy by reporting average occupancy during the period will provide readers with useful information for interpreting results. See the REIT's MD&A for more information on this and other adjustments to the occupancy calculation and for comparative amounts for previous periods.

Average occupancy of unfurnished suites over the reporting period declined to 91.1% in Q1 2021, compared to 92.3% in Q4 2020 and 96.6% in Q1 2020. While suite turnover is typically low in the winter months, it was unusually high in Q1 2021 due to the impact of COVID-19, which altered the REIT's typical suite turnover pattern. In Q1 2021, there were 427 move-outs compared to 295 in Q1 2020 and 362 move-ins compared to 290 in Q1 2020. Higher leasing pushed the turnover rate to 7.2% in Q1 2021, compared to 5.2% in Q1 2020. In order to preserve long-term value, the REIT has elected to accept higher vacancy in the short term by holding rate with the expectation that leasing demand will continue to strengthen through 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 3.0% of its suites on a furnished basis (216 suites out of 7,277 suites as at March 31, 2021). Furnished suite occupancy was 62.5% in Q1 2021 compared to 64.2% in Q1 2020. In response to a drop in demand from corporate users due to COVID-19 restrictions, the REIT has increased its mix of government and transient users. Management will continue to adjust the 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 $158.9 million as at March 31, 2021, with a liquidity ratio (total liquidity/total debt) of 18.6% and a conservative Debt-to-GBV¹ ratio of 38.7%.

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 Q1 2021, the REIT signed 470 new leases, a 33% increase compared to 353 new leases signed in Q1 2020. As noted above, leasing activity typically slows down during the winter months, but was higher than normal in Q1 2021 to respond to the unusually high number of move-outs experienced during the quarter. The REIT achieved an average rental rate on the new leases that was 7.6% higher than the expiring rents, resulting in an increase in annualized revenue of approximately $0.6 million. Gains were realized in all of the REIT's markets, including Alberta, where, due to challenging economic conditions, gain-to-lease has not been achieved since late 2019. The 7.6% gain was significantly stronger than the 2.1% gain that the REIT generated in Q4 2020, though it was below the 13.6% gain generated in the strong pre-pandemic market last year.

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 8.2% as at March 31, 2021, representing future annualized embedded potential revenue of approximately $8.7 million. That compares to an annualized revenue growth opportunity of $8.0 million estimate as at December 31, 2020, and $14.7 million as at March 31, 2020. Management expects the REIT's gain-to-lease potential to increase in the second half of 2021 on rising market demand as the Canadian economy emerges from the pandemic. 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 Q1 2021, repositioning a total of 46 suites across its portfolio. The annualized revenue gains realized on the suites that were repositioned in Q1 2021 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 2,425 suites remaining to be repositioned.

The REIT has entered into agreements to extend investment financing for the development of three properties: Fifth + Bank and Beechwood in Ottawa, and Lonsdale Square in North Vancouver. Construction of Fifth + Bank is well advanced and is expected to be stabilized in early 2022. Construction at Phase I of Lonsdale Square will commence in Q2 2021 and is expected to be stabilized in 2023. Construction of Beechwood is expected to commence in early 2022, with completion scheduled for late 2024. The REIT has options to purchase each of these properties upon stabilization at a 5% discount to the then appraised value.

Certain REIT properties have the potential to develop additional rental suites on available excess land. At Richgrove, the REIT is in the process of obtaining construction financing from CMHC for a 225-suite building, including 100 affordable suites to be subsidized by the City of Toronto. Construction is expected to commence in Q3 2021, with completion in mid-2024. At Leslie York Mills, the REIT plans to develop 192 rental terrace homes, with construction expected to commence in the fourth quarter of 2021 and be completed by the second quarter of 2024. At High Park Village, the REIT is in discussions with the City of Toronto to develop two towers comprising approximately 650 suites, with construction expected to commence in 2023.

Combined, the six development opportunities described above would add a total of 1,572 suites to the REIT's portfolio upon completion.

Financial Summary

Q1 2021 Operating Results

Revenue in Q1 2021 totalled $30.0 million, compared to $31.5 million in Q1 2020. The decline was primarily attributable to lower occupancy in furnished and unfurnished suites, partially offset by higher average rents for unfurnished suites. More than half of the decline is attributable to three urban properties (185 Lyon, Minto Yorkville and 150 Roehampton). The REIT also generated less revenue from commercial leases, parking, fitness centres, laundry, guest suites and party room rentals. Revenue excluding furnished suites was $28.5 million, compared to $29.4 million in Q1 2020.

Occupancy of unfurnished suites over the reporting period averaged 91.1% in Q1 2021, compared to 92.3% in Q4 2020 and 96.6% in Q1 2020.

NOI¹ for Q1 2021 totalled $17.9 million, representing 59.6% of revenue, compared to $19.5 million, or 61.8% of revenue, in Q1 2020. The lower NOI¹ in Q1 2021 reflected the reduction in revenue described above, and higher property taxes. NOI¹ excluding furnished suites was $17.3 million, or 60.8% of revenue, in Q1 2021 compared to $18.4 million, or 62.6% of revenue, in Q1 2020.

FFO¹ in Q1 2021 was $10.9 million, or $0.1845 per unit², compared to $12.1 million, or $0.2052 per unit², in Q1 2020. The lower FFO¹ in Q1 2021 primarily reflected the negative NOI¹ variance. AFFO¹ in Q1 2021 was $9.3 million, or $0.1579 per unit², compared to $10.6 million, or $0.1788 per unit², in Q1 2020. The reduction in AFFO¹ for Q1 2021 reflected the lower FFO¹, adjusted for the amortization of mark-to-market adjustments.

The REIT reported net loss and comprehensive loss for Q1 2021 of $20.4 million, compared to net income and comprehensive income for Q1 2020 of $87.9 million. The negative variance was primarily attributable to a fair value loss on Class B LP Units of $30.5 million in Q1 2021, compared to a fair value gain of $83.1 million in Q1 2020, partially offset by fair value gains on investment properties.

The REIT paid cash distributions totalling $0.1138 per unit² for Q1 2021, an increase of 3.5% and representing an AFFO¹ payout ratio of 72.0%. Cash distributions of $0.1100 per unit² were paid in Q1 2020, representing an AFFO¹ payout ratio of 61.5%.

Balance Sheet

As of March 31, 2021, the REIT had total debt outstanding of $856.3 million, with a weighted average interest rate of 2.90% and a weighted average term to maturity of 5.67 years for its fixed-rate term debt. The Debt-to-GBV¹ ratio was 38.7%.

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, May 7, 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=1450861&tp_key=4c512a76bc

A replay of the call will be available until Friday, May 14, 2021. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 775646 #). 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.sedarplus.ca). 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 Q1 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