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.sedar.com.
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 unit2, 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.
___________________________
|
1
|
NOI, FFO, AFFO, net
asset value and Debt-to-GBV are non-IFRS financial measures. Refer
to "Non-IFRS Financial Measures" in this news release.
|
2
|
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.
|
3
|
Suite count is
subject to final zoning and development approvals.
|
"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
($000's except per
unit amounts)
|
Three months ended
March 31,
|
2021
|
|
2020
|
|
Variance
|
Revenue from
investment properties
|
$
|
29,999
|
|
$
|
31,525
|
|
(4.8)
|
%
|
Property operating
costs
|
5,771
|
|
5,783
|
|
0.2
|
%
|
Property
taxes
|
3,508
|
|
3,420
|
|
(2.6)
|
%
|
Utilities
|
2,836
|
|
2,833
|
|
(0.1)
|
%
|
NOI1
|
$
|
17,884
|
|
$
|
19,489
|
|
(8.2)
|
%
|
NOI1
margin (%)
|
59.6
|
%
|
61.8
|
%
|
(220) bps
|
Revenue excluding furnished suites
|
$
|
28,468
|
|
$
|
29,448
|
|
(3.3)
|
%
|
NOI1
excluding furnished suites
|
17,314
|
|
18,438
|
|
(6.1)
|
%
|
NOI1
margin (%) excluding furnished suites
|
60.8
|
%
|
62.6
|
%
|
(180) bps
|
Net income and
comprehensive income
|
$
|
(20,427)
|
|
$
|
87,944
|
|
(123.2)
|
%
|
FFO1
|
$
|
10,891
|
|
$
|
12,117
|
|
(10.1)
|
%
|
FFO1 per
unit2
|
$
|
0.1845
|
|
$
|
0.2052
|
|
(10.1)
|
%
|
AFFO1
|
$
|
9,322
|
|
$
|
10,558
|
|
(11.7)
|
%
|
AFFO1 per
unit2
|
$
|
0.1579
|
|
$
|
0.1788
|
|
(11.7)
|
%
|
Distribution per
unit2
|
$
|
0.1138
|
|
$
|
0.1100
|
|
3.5
|
%
|
AFFO1
payout ratio
|
72.0
|
%
|
61.5
|
%
|
1050 bps
|
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.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,
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