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Minto Apartment REIT Reports Third Quarter 2020 Financial Results

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— Solid growth in rental revenue and NOI1 despite lower demand for furnished suites —

OTTAWA, ON, Nov. 10, 2020 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the third quarter ("Q3 2020") and nine months ended September 30, 2020. The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q3 2020 and the nine months ended September 30, 2020 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.

Q3 2020 Highlights

  • Total revenue was $31.2 million, an increase of 12.7% from the three months ended September 30, 2019 ("Q3 2019"); same property revenue2 of $22.5 million decreased 3.5% from Q3 2019; same property revenue2 excluding furnished suites was $20.7 million, an increase of 1.7% from Q3 2019;

  • Net Operating Income ("NOI")1 was $20.2 million, an increase of 14.6% from Q3 2019; same property NOI1,2 of $14.2 million decreased 4.7% from Q3 2019; same property NOI1,2 excluding furnished suites was $13.3 million, an increase of 2.6% from Q3 2019;

  • NOI1 margin was 64.7%, an increase of 110 basis points ("bps") from Q3 2019; same property NOI1,2 margin was 63.0%, 80 bps lower than Q3 2019; same property NOI1,2 margin excluding furnished suites was 64.1%, 50 bps higher than Q3 2019;

  • Net income and comprehensive income was $56.6 million, compared to a net loss and comprehensive loss of $29.9 million in Q3 2019;

  • Funds from Operations ("FFO")1 increased by 22.0% to $13.2 million, compared to $10.8 million in Q3 2019; FFO1 per unit3 declined by 2.1% to $0.2233, compared to $0.2280 in Q3 2019;

  • Adjusted Funds from Operations ("AFFO")1 increased by 23.8% to $11.6 million, compared to $9.4 million in Q3 2019; AFFO1 per unit3 declined by 0.6% to $0.1968, compared to $0.1980 in Q3 2019;

  • The REIT paid distributions during the quarter totalling $0.1125 per unit3 compared to $0.1100 per unit3 in Q3 2019, an increase of 2.3%;

  • The Q3 2020 AFFO1 payout ratio was 57.2%, compared to 54.4% in Q3 2019;

  • Occupancy of available unfurnished suites as at September 30, 2020 was 97.0%, compared to 98.6% as at September 30, 2019; same property occupancy2 of available unfurnished suites as at September 30, 2020 was 96.8%, compared to 98.5% as at September 30, 2019;

  • Average monthly rent as at September 30, 2020, excluding furnished and/or unoccupied suites, was $1,613, an increase of 9.1% compared to $1,478 as at September 30, 2019; average monthly rent for the same property portfolio2, excluding furnished and/or unoccupied suites, was $1,514 as at September 30, 2020, an increase of 3.8% compared to $1,458 as at September 30, 2019; and

  • Debt to Gross Book Value ("Debt-to-GBV")1 as at September 30, 2020 was 39.6%, compared to 39.3% at the end of 2019.

"The REIT's portfolio continues to generate solid performance despite the uncertainty created by COVID-19," said Michael Waters, the REIT's Chief Executive Officer and President. "Our rent collections remain strong, and we continue to execute on our internal and external growth strategies. Given our strong liquidity and superior property portfolio I am confident that we will emerge from the pandemic in an excellent competitive position."

_________________________________________

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 233 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.

COVID-19 Response and Impact on the REIT

In recent weeks, the number of COVID-19 cases has increased across Canada and certain provincial governments have re-introduced or imposed stricter restrictions in an attempt to limit further spread of the virus. 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.

The REIT's business has remained highly resilient throughout the pandemic. Rental collections have been consistent with pre-pandemic cycles and occupancy has remained strong. Notwithstanding its strong collections, the REIT will continue to work with its residents on a case-by-case basis to address any payment difficulties arising from the pandemic.

The REIT's suite turnover rate was 6% in Q3 2020, and 21% for the trailing twelve-month period ended September 30, 2020. These rates were slightly below the prior-year periods but were sequentially higher than Q2 2020 levels as turnover began normalizing towards the end of Q3 2020.

Due to the pandemic, the REIT has experienced increased variability in its expenses but the team is actively making adjustments to maintain operating margins. Overall, the REIT is not expecting the expense volatility to have any material impact on its NOI1 margin.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $186.1 million as at September 30, 2020, with a liquidity ratio (total liquidity/total debt) of 22.11% and conservative Debt-to-GBV1 ratio of 39.6%.

Growth Initiatives

During Q3 2020, the REIT signed 403 new leases at average monthly rents that were 9.4% higher than the expiring rents, resulting in an increase in annualized revenue of approximately $0.5 million. Higher rental rates were realized in all markets upon suite turnover except Alberta, with the largest increases being generated in Toronto and Ottawa. While leasing activity was lower than normal in Q3 2020 due to COVID-19, it was significantly stronger compared to the second quarter of 2020, when 339 new leases were signed at average monthly rents that were 9.1% higher than expiring rents.

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 11.8%, representing future annualized embedded potential revenue of approximately $12.7 million. The embedded potential revenue opportunity declined from approximately $13.4 million as at June 30, 2020 due to gains realized during Q3 2020, revised expectations for each market going forward, more suites taken offline for repositioning and a small increase in vacant suites.

The REIT also continued to productively deploy capital through its repositioning program in Q3 2020, repositioning a total of 62 suites across its portfolio. The annualized revenue gains realized on these suites generated returns on investment that were consistent with the REIT's target return of 8% to 15% for this program. The REIT has a total of 2,379 suites remaining to be repositioned at the following properties: Leslie York Mills and High Park Village in Toronto, Carlisle and Castle Hill in Ottawa, Rockhill, Le 4300 and Haddon Hall in Montreal and the Edmonton portfolio.

As described in the prospectus for the REIT's Initial Public Offering in 2018, the REIT acquired, but deferred payment for, the Skyline Maisonettes property. This property had been damaged by a fire in March 2017, which destroyed 32 units. The construction of the 32 replacement Skyline suites was substantially completed in Q3 2020 and the building is beginning its lease-up period. The REIT's operating results are expected to be positively impacted as the lease-up is completed over the coming quarters at which time the agreed payment will be completed.

Financial Summary

($000's except per unit amounts)

Three months ended September 30,

Nine months ended September 30,

2020

2019

Variance

2020

2019

Variance

Revenue from investment
properties

$

31,155


$

27,639


12.7

%

$

93,999


$

74,570


26.1

%

Property operating costs

5,582


5,227


(6.8)

%

17,079


13,961


(22.3)

%

Property taxes

3,299


2,864


(15.2)

%

10,184


7,911


(28.7)

%

Utilities

2,113


1,960


(7.8)

%

7,062


6,014


(17.4)

%

NOI1

$

20,161


$

17,588


14.6

%

$

59,674


$

46,684


27.8

%

NOI1 margin (%)

64.7

%

63.6

%

110 bps

63.5

%

62.6

%

90 bps

Same property revenue2

$

22,540


$

23,349


(3.5)

%

$

67,976


$

68,314


(0.5)

%

Same property NOI1,2

14,190


14,886


(4.7)

%

42,350


42,658


(0.7)

%

Same property NOI1,2 margin (%)

63.0

%

63.8

%

(80) bps

62.3

%

62.4

%

(10) bps

Same property revenue2 excluding
furnished suites

$

20,715


$

20,363


1.7

%

$

62,297


$

60,324


3.3

%

Same property NOI1,2 excluding
furnished suites

13,286


12,953


2.6

%

$

39,204


$

37,421


4.8

%

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

64.1

%

63.6

%

50 bps

62.9

%

62.0

%

90 bps

Net income (loss) and
comprehensive income (loss)

$

56,630


$

(29,889)


(289.5)

%

$

156,628


$

258


60,608.5

%

FFO1

$

13,183


$

10,808


22.0

%

$

37,959


$

27,895


36.1

%

FFO1 per unit3

$

0.2233


$

0.2280


(2.1)

%

$

0.6429


$

0.6454


(0.4)

%

AFFO1

$

11,619


$

9,385


23.8

%

$

33,274


$

23,930


39.0

%

AFFO1 per unit3

$

0.1968


$

0.1980


(0.6)

%

$

0.5635


$

0.5537


1.8

%

Distributions declared per unit3

$

0.1125


$

0.1100


2.3

%

$

0.3325


$

0.3125


6.4

%

AFFO1 payout ratio

57.2

%

54.4

%

280 bps

59.0

%

56.5

%

250 bps

Q3 2020 Operating Results

Revenue in Q3 2020 totalled $31.2 million, an increase of 12.7% from $27.6 million in Q3 2019. The increase was primarily attributable to the contribution from the three property acquisitions the REIT completed subsequent to June 30, 2019, comprising a total of 1,278 suites (828 suites at the REIT's proportionate share), 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 September 30, 2020, occupancy in the REIT's available unfurnished suite portfolio was 97.0% and average monthly rent was $1,613 per occupied unfurnished suite. That compares to occupancy of 98.6% and average monthly rent of $1,478 per occupied unfurnished suite as at September 30, 2019.

NOI1 for Q3 2020 totaled $20.2 million, representing 64.7% of revenue, an increase of 14.6% from $17.6 million, or 63.6% of revenue, in Q3 2019. The increase reflects the contribution from the property acquisitions completed subsequent to June 30, 2019, partially offset by lower revenue from furnished suites.

Same property revenue2 declined 3.5% to $22.5 million in Q3 2020, compared to $23.3 million in Q3 2019, primarily reflecting decreased revenue from furnished suites as well as slightly lower occupancy and turnover, partially offset by higher rents achieved on new leases, higher revenue earned from repositioned suites, and increased parking revenue. Same property revenue2 excluding furnished suites increased 1.7% to $20.7 million in Q3 2020, from $20.4 million in Q3 2019.

Same property NOI1,2 decreased 4.7% in Q3 2020 to $14.2 million, or 63.0% of revenue, compared to $14.9 million, or 63.8% of revenue, in Q3 2019. The decline in same property NOI1,2 is primarily the result of lower occupancy for furnished suites attributable to COVID-19. Same property NOI1,2 excluding furnished suites increased 2.6% to $13.3 million in Q3 2020, or 64.1% of revenue, compared to $13.0 million, or 63.6% of revenue, in Q3 2019. The increase primarily reflects higher same property revenue2, as well as a decrease in property operating expenses. Overall, the unfurnished suites have performed well despite the impact of COVID-19.

FFO1 in Q3 2020 was $13.2 million, or $0.2233 per unit3, compared to $10.8 million, or $0.2280 per unit3, in Q3 2019. The 22.0% increase in FFO1 in Q3 2020 primarily reflected the positive NOI1 variance. AFFO1 was $11.6 million in Q3 2020, or $0.1968 per unit3, compared to $9.4 million, or $0.1980 per unit3, in Q3 2019. The 23.8% positive variance in AFFO1 for Q3 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 declines in FFO1 per unit3 and AFFO1 per unit3 in Q3 2020 reflect short-term dilution from two equity issuances completed in the second half of 2019 to fund property acquisitions.

The REIT paid cash distributions totaling $0.1125 per unit3 for Q3 2020, representing an AFFO1 payout ratio of 57.2%. Cash distributions of $0.1100 per unit3 were paid in Q3 2019, representing an AFFO1 payout ratio of 54.4%. On August 11, 2020, the REIT announced a 3.4% increase in its cash distributions, effective for the August 2020 distribution.

The REIT reported net income and comprehensive income for Q3 2020 of $56.6 million, compared to a net loss and comprehensive loss of $29.9 million in Q3 2019. The positive variance in Q3 2020 was primarily attributable to a fair value gain on Class B LP Units of Minto Apartment Limited Partnership of $36.9 million in Q3 2020, compared to a fair value loss of $85.7 million in Q3 2019, due to changes in the trading price of the REIT Units. The fair value gain on investment properties in Q3 2020 was $8.8 million, compared to $47.5 million in Q3 2019.

Balance Sheet

As of September 30, 2020, the REIT had total debt outstanding of $841.6 million, with a weighted average interest rate of 2.94% and a weighted average term to maturity of 6.06 years for its fixed-rate term debt. The Debt-to-GBV1 ratio was 39.6%.

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 Thursday, November 12, 2020 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=1381941&tp_key=f92becfb35

A replay of the call will be available until Thursday, November 19, 2020. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 191177 #). 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 November 10, 2020 (the "Q3 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 Q3 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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