— Strong operational performance drove
double-digit growth in Same Property Portfolio revenue and NOI
—
OTTAWA,
ON, May 9, 2023 /CNW/ - Minto Apartment Real
Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced
its financial results for the first quarter ended March 31, 2023 ("Q1 2023"). The Condensed
Consolidated Interim Financial Statements and Management's
Discussion and Analysis ("MD&A") for Q1 2023 are available on
the REIT's website at www.mintoapartmentreit.com and at
www.sedar.com.1
"The REIT had a very strong start to the year, operationally, as
our best-in-class urban portfolio continues to benefit from robust
industry fundamentals," said Jonathan
Li, President and Chief Executive Officer ("President and
CEO") of the REIT. "The first quarter is seasonally a slower
quarter, however the REIT's net operating income ("NOI")
performance in Q1 2023 thrived. Our gain-on-lease results were
strong and average occupancy continued to improve, resulting in
year over year double-digit growth in the REIT's Same Property
Portfolio revenue and NOI. Given the significant affordability gap
between renting and owning a home, insufficient supply of new
housing and significant immigration-driven population growth,
long-term sector fundamentals remain constructive for our
business."
"At the same time, like many Canadians, our business is faced
with the challenges resulting from the historic rapid rise of
interest rates, and to that end, we are making progress on
transitioning our balance sheet to be best-in-class. Subsequent to
quarter end, we have replaced the variable rate mortgage associated
with Niagara West, which as at March 31,
2023 had an interest rate of 7.70%, with a new 10-year
CMHC-insured 3.87% fixed rate mortgage. Additionally, we submitted
refinancing applications to CMHC on $136.9
million of maturing mortgages which we anticipate will
result in incremental proceeds between $60
million and $70 million that
we will use to repay a portion of our revolving credit facility,
further reducing our future variable rate interest expense. Lastly,
we expect to imminently replace the variable rate mortgage
associated with The International in Calgary, which as at March 31, 2023 had an interest rate of 7.44%,
with a new 10-year CMHC-insured fixed rate mortgage with an
expected interest rate of approximately 4%. We expect these
variable rate debt repayment initiatives to bring immediate upside
to FFO and AFFO per unit," added Mr. Li. "We will continue to
evaluate other initiatives to maintain or reduce the REIT's overall
leverage and further reduce its variable rate interest exposure
over time."
_____________________________________
|
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.
|
Q1 2023 Highlights
- Average monthly rent was $1,769,
an increase of 6.9% compared to the first quarter ended
March 31, 2022 ("Q1 2022"). Average
monthly rent for the Same Property Portfolio2 was
$1,755, an increase of 5.7% compared
to Q1 2022;
- Average occupancy of unfurnished suites increased to 97.2%,
compared to 94.2% in Q1 2022 and 97.1% in the fourth quarter of
2022 ("Q4 2022");
- The REIT executed 343 new leases, achieving an average rental
rate that was 16.9% higher than the expiring rents, matching the
highest quarterly gain-on-lease in the REIT's history. As rental
markets have continued to strengthen, the gain-to-lease potential
on sitting rents increased sequentially to 15.3% from 13.6% at the
end of Q4 2022;
- Revenue for the Same Property Portfolio was $35.7 million, an increase of 10.5% compared to
Q1 2022; total revenue was $38.4
million, an increase of 18.1% compared to Q1 2022; ;
- NOI for the Same Property Portfolio was $21.1 million, an increase of 13.3% compared to
Q1 2022; NOI was $22.7 million, an
increase of 21.0% compared to Q1 2022;
- NOI margin for the Same Property Portfolio increased to 59.2%,
compared to 57.7% in Q1 2022; NOI margin increased to 59.2%,
compared to 57.8% in Q1 2022;
- Net loss and comprehensive loss was $24.2 million, compared to net income and
comprehensive income of $34.6 million
for Q1 2022;
- Funds from Operations ("FFO") were $11.6
million, or $0.1772 per unit,
compared to $12.0 million, or
$0.1906 per unit, in Q1 2022;
- Adjusted Funds from Operations ("AFFO") were $9.9 million, or $0.1513 per unit, compared to $10.3 million, or $0.1647 per unit, in Q1 2022;
- Distributions per Unit were $0.1225, an increase of 3.2% compared to Q1 2022
and representing an AFFO payout ratio of 81.0%;
- The REIT repositioned 32 suites across its portfolio in Q1
2023, generating an average annual unlevered return of 10.3%;
- Effective January 9, 2023,
Edward Fu succeeded Julie Morin as Chief Financial Officer of the
REIT;
- The REIT was added to the S&P/TSX Canadian Dividends
Aristocrats Index effective February 1,
2023, due to its consistent distribution increases;
- On March 7, 2023, the REIT
completed the disposition of Hi-Level Place in Edmonton for a sale price of $9.9 million, generating net proceeds of
$2.9 million;
- On March 23, 2023, the REIT and
Minto Properties Inc. ("MPI") amended the convertible development
loan agreement related to Fifth + Bank in Ottawa to extend the REIT's exclusive option
to purchase the property to December 31,
2023, and to extend the maturity date of the convertible
development loan until January 31,
2024. The coupon payable under the loan was also amended,
and effective July 1, 2023, it will
be equal to the all-in interest rate of the REIT's credit facility,
subject to a maximum interest rate of 7% per annum and minimum
interest rate of 5% per annum; and
- During March 2023, the REIT
acquired rate lock commitments for the upward refinancing of five
maturing mortgages with a principal of $136.9 million and expected net proceeds between
$60 million and $70 million, which the REIT intends to use to
repay a portion of its revolving credit facility. The new mortgages
will have fixed interest rates between 3.87% and 3.95%.
_________________________
|
2 Same
Property Portfolio consists of 29 multi-residential properties both
wholly and jointly owned by the REIT for comparable periods in Q1
2023 and Q1 2022.
|
Subsequent to Quarter End
- Jonathan Li assumed the role of
President and CEO effective April 3,
2023, an important step in the REIT's internalization
process; and
- On April 27, 2023, the REIT
secured a $61.2 million CMHC-insured
mortgage for its Niagara West property at an annual fixed interest
rate of 3.87% with a 10-year term. The net proceeds were used to
repay the existing $46.2 million
variable rate mortgage on the property that at March 31, 2023 had an interest rate of 7.70% and
a portion of the credit facility.
Financial Summary
($000's except per
unit and per suite amounts)
|
Three months ended
March 31,
|
2023
|
2022
|
Variance
|
Revenue from investment
properties
|
$
38,403
|
$
32,526
|
18.1 %
|
Property operating
costs
|
7,443
|
6,480
|
(14.9) %
|
Property
taxes
|
4,008
|
3,665
|
(9.4) %
|
Utilities
|
4,216
|
3,595
|
(17.3) %
|
NOI
|
$
22,736
|
$
18,786
|
21.0 %
|
NOI margin
(%)
|
59.2 %
|
57.8 %
|
140 bps
|
Revenue - Same Property
Portfolio
|
$
35,724
|
$
32,331
|
10.5 %
|
NOI - Same Property
Portfolio
|
21,136
|
18,659
|
13.3 %
|
NOI margin (%) - Same
Property Portfolio
|
59.2 %
|
57.7 %
|
150 bps
|
Interest
costs
|
$
10,668
|
$
6,209
|
(71.8) %
|
Net (loss) income and
comprehensive (loss) income
|
$
(24,227)
|
$
34,640
|
N/A
|
FFO
|
11,629
|
11,979
|
(2.9) %
|
FFO per unit
|
0.1772
|
0.1906
|
(7.0) %
|
AFFO
|
9,933
|
10,348
|
(4.0) %
|
AFFO per
unit
|
0.1513
|
0.1647
|
(8.1) %
|
Distribution per
unit
|
0.1225
|
0.1187
|
3.2 %
|
AFFO payout
ratio
|
81.0 %
|
72.1 %
|
(890) bps
|
Average monthly
rent
|
$
1,769
|
$
1,655
|
6.9 %
|
Average monthly rent -
Same Property Portfolio
|
$
1,755
|
$
1,661
|
5.7 %
|
Average
occupancy
|
97.2 %
|
94.2 %
|
300 bps
|
Average occupancy -
Same Property Portfolio
|
97.2 %
|
94.2 %
|
300 bps
|
Q1 2023 Operating Results
Revenue in Q1 2023 totalled $38.4
million, an increase of 18.1% from $32.5 million in Q1 2022. The increased revenue
in Q1 2023 reflected improved occupancy, higher average monthly
rents, reduced amortization of promotions, and the acquisitions of
two properties completed subsequent to Q1 2022 (Niagara West and
The International), partially offset by the disposition of Hi-Level
Place. Same Property Portfolio revenue was $35.7 million, an increase of 10.5% from Q1 2022,
reflecting the improved occupancy and higher average monthly rent,
as well as reduced amortization of promotions.
Average monthly rent at the end of Q1 2023 was $1,769, an increase of 6.9% compared to
$1,655 at the end of Q1 2022. Average
monthly rent for the Same Property Portfolio was $1,755 at the end of Q1 2023, an increase of 5.7%
compared to the end of Q1 2022.
Average occupancy was 97.2% in Q1 2023, compared to 94.2% in Q1
2022 and 97.1% in Q4 2022.
The increases in average monthly rent and occupancy reflected
the continued strengthening of urban rental market conditions in
the REIT's major markets.
Operating expenses were 14.0% higher (6.7% higher for the Same
Property Portfolio) in Q1 2023 compared to Q1 2022, reflecting
higher gas rates, salaries and repair and maintenance costs, as
well as acquisitions completed subsequent to Q1 2022. While
inflation continued to increase the cost of utilities and property
operating expenses, it has moderated from its peak in 2022.
Management has in-place strategies to contain controllable
operating expenses and continues to evaluate opportunities for cost
reductions and efficiencies.
NOI for Q1 2023 totalled $22.7
million, representing 59.2% of revenue, an increase of 21.0%
compared to $18.8 million, or 57.8%
of revenue, in Q1 2022. Same Property Portfolio NOI for Q1 2023 was
$21.1 million, representing 59.2% of
revenue, an increase of 13.3% compared to $18.7 million, or 57.7% of revenue, in Q1 2022.
The increases in NOI and Same Property Portfolio NOI in Q1 2023
reflected higher revenue, partially offset by higher operating
expenses as noted above.
FFO in Q1 2023 was $11.6 million,
or $0.1772 per unit, compared to
$12.0 million, or $0.1906 per unit, in Q1 2022. AFFO in Q1 2023 was
$9.9 million, or $0.1513 per unit, compared to $10.3 million, or $0.1647 per unit in Q1 2022. The declines in Q1
2023 were primarily attributable to the increase in finance costs
due to high interest rates on variable rate mortgages and the
REIT's credit facility, as well as increased draws on the credit
facility, partially offset by higher NOI. AFFO and AFFO per unit
were also impacted by an increase in the maintenance capital
expenditure reserve from the addition of the properties acquired
subsequent to Q1 2022.
The REIT reported a net loss and comprehensive loss of
$24.2 million in Q1 2023, compared to
net income and comprehensive income of $34.6
million in Q1 2022. The variance was primarily attributable
to non-cash, fair value losses on investment properties and Class B
LP Units of $13.5 million and
$18.3 million, respectively, in Q1
2023 compared to non-cash gains of $14.4
million and $9.6 million,
respectively, in Q1 2022. The fair value loss on investment
properties in Q1 2023 reflected a slight expansion of
capitalization rates for suburban Ottawa assets, partially offset by stable
growth in forecast NOI for the portfolio at large. The fair value
loss in Class B LP Units reflected the increase in the REIT's unit
price during Q1 2023.
The REIT paid cash distributions of $0.1225 per unit for Q1 2023, an increase of 3.2%
compared to Q1 2022 and representing an AFFO payout ratio of 81.0%.
Cash distributions of $0.1187 per
unit were paid in Q1 2022, representing an AFFO payout ratio of
72.1%.
Gain-on-Lease, Gain-to-Lease Potential and
Repositioning
The REIT signed 343 new leases in Q1 2023, realizing an average
gain-on-lease of 16.9%, which matched the highest quarterly gain in
the REIT's history. This resulted in an annualized incremental
revenue gain of approximately $1.0
million. By comparison, the REIT realized gains on new
leases of 10.8% in Q1 2022 and 16.6% in Q4 2022. The REIT realized
significant double-digit gain-on-lease in all markets during Q1
2023. The Canadian urban rental market maintained its strong
performance during the quarter, supported by increased immigration,
a large affordability gap between rentals and home ownership,
increased acceptance of renting versus owning and, for the REIT's
urban portfolio, a broad return to downtown living. Suite turnover
was lower compared to recent quarters due to the seasonal slowdown
typical for Q1 and very tight rental market conditions, resulting
in more tenants choosing to stay in place.
Management estimates that the REIT held embedded gain-to-lease
potential in its unfurnished suite portfolio of 15.3% as at
March 31, 2023, representing future
annualized embedded potential revenue of approximately $20.7 million, the largest such dollar amount in
the REIT's history. That compares to embedded gain-to-lease
potential of 10.7% and an estimated annualized revenue growth
opportunity of $12.5 million as at
March 31, 2022, and 13.6% or
$18.1 million as at December 31, 2022. The embedded
gain-to-lease potential is increasing as Canadian urban market
rents continue to strengthen.
Management believes that the strength in the Canadian rental
market will be sustained and that suite turnover will remain slow
in the months ahead as existing tenants will be more likely to stay
in place since affordable housing alternatives will be less
available. However, Management expects that the REIT will be able
to realize a significant portion of the gain-to-lease potential
over the next four to six years.
The REIT repositioned a total of 32 suites across its portfolio
in Q1 2023. The annualized revenue gains realized on the
repositioned suites generated an average annual unlevered return on
investment of 10.3%. The REIT has a total of 1,951 suites remaining
to be repositioned under its current program. Due to the
anticipated lower suite turnover in the Canadian rental market, as
well as low vacancy rates, Management currently expects to
reposition 80 to 120 suites in 2023, a reduction from 259 in
2022.
Balance Sheet and Debt Refinancing Initiatives
As of March 31, 2023, the REIT had
total debt outstanding of $1.13
billion, with a weighted average interest rate on fixed rate
debt of 3.07% and a weighted average term to maturity on fixed rate
debt of 3.98 years. Included in the REIT's total debt was also
variable rate debt (comprised of the REIT's credit facility and
variable rate mortgages), with $289.8
million outstanding and a weighted average interest rate of
7.01% as of March 31, 2023.
Subsequent to Q1 2023, the REIT refinanced the variable rate
mortgage associated with Niagara West with a CMHC-insured mortgage
at a fixed interest rate of 3.87% and will imminently refinance the
$62.2 million 7.44% variable rate
mortgage secured by The International with a 10-year
CMHC-insured fixed rate mortgage with an anticipated interest rate
of approximately 4%. These refinancings will reduce the REIT's
borrowing costs and limit the REIT's variable interest rate
exposure to only the revolving credit facility. The REIT intends to
use the estimated proceeds of between $60
million and $70 million from
the upward refinancings of five maturing mortgages with a principal
of $136.9 million to pay down a
portion of its credit facility and further reduce its variable
interest rate exposure.
The Debt-to-Gross Book Value ("GBV") ratio as at March 31, 2023 was 41.2%. The REIT's net asset
value ("NAV") per unit as at March 31,
2023 was $23.83, a slight
decline from $24.00 as at
December 31, 2022, primarily
reflecting the fair value loss on investment properties of
$13.5 million in Q1 2023 as noted
above.
The REIT continues to maintain a strong financial position.
Total liquidity was approximately $91.8
million as at March 31, 2023,
with a liquidity ratio (total liquidity/total debt) of 8.1%.
Conference Call
Management will host a conference call for analysts and
investors on Wednesday, May 10, 2023
at 10:00 am ET. To join the
conference call without operator assistance, participants can
register and enter their phone number at
https://emportal.ink/3KxkrSl to receive an instant automated call
back. Alternatively, they can dial 416-764-8688 or 1-888-390-0546
to reach a live operator who will join them into the call.
In addition, the call will be webcast live at:
Minto Apartment REIT Q1 2023 Earnings Webcast
A replay of the call will be available until Wednesday, May 17, 2023. To access the replay,
dial 416-764-8677 or 888-390-0541 (Passcode: 970664 #). 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.mintoapartmentreit.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, 2023, 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-IFRS 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 International Financial
Reporting Standards ("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:
- "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.
- "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 per
suite 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.
- "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.
- "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 Minto
Apartment Limited Partnership (the "Partnership") outstanding over
the period. The REIT regards FFO per unit as a key measure of
operating performance.
- "gain-on-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.
- "Gross Book Value" is defined as the total assets of the REIT
as at the balance sheet date.
- "interest costs" is calculated as the sum of costs incurred on
fixed and variable rate mortgages, credit facility, and Class C LP
Units.
- "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.
- "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.
- "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.
- "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.
Reconciliations of Non-IFRS Financial Measures and
Ratios
FFO and AFFO
($000's except unit
and per unit amounts)
|
Three months ended
March 31,
|
2023
|
2022
|
Net (loss) income and
comprehensive (loss) income
|
$
(24,227)
|
$
34,640
|
Distributions on Class
B LP Units
|
3,155
|
2,704
|
Disposition costs on
investment property
|
348
|
—
|
Fair value loss (gain)
on:
|
|
|
Investment
properties
|
13,503
|
(14,395)
|
Class B LP
Units
|
18,286
|
(9,563)
|
Interest rate
swap
|
410
|
(1,307)
|
Unit-based
compensation
|
154
|
(100)
|
Funds from
operations (FFO)
|
11,629
|
11,979
|
Maintenance capital
expenditure reserve
|
(1,520)
|
(1,436)
|
Amortization of
mark-to-market adjustments
|
(176)
|
(195)
|
Adjusted funds from
operations (AFFO)
|
9,933
|
10,348
|
Distributions on Class
B LP Units
|
3,155
|
2,704
|
Distributions on
Units
|
4,886
|
4,758
|
|
$
8,041
|
$
7,462
|
AFFO payout
ratio
|
81.0 %
|
72.1 %
|
Weighted average number
of Units and Class B LP Units issued and outstanding
|
65,642,641
|
62,838,912
|
FFO per
unit
|
$
0.1772
|
$
0.1906
|
AFFO per
unit
|
$
0.1513
|
$
0.1647
|
NAV and NAV per unit
($000's except unit
and per unit amounts)
|
As at
|
March 31,
2023
|
December 31,
2022
|
Net assets
(Unitholders' equity)
|
$
1,184,424
|
$
1,213,537
|
Add: Class B LP
Units
|
380,144
|
361,858
|
NAV
|
$
1,564,568
|
$
1,575,395
|
Number of Units and
Class B LP Units
|
65,642,641
|
65,642,641
|
NAV per
unit
|
$
23.83
|
$
24.00
|
SOURCE Minto Apartment Real Estate Income Trust