Minto Apartment REIT Reports 2023 First Quarter Financial Results

— 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."

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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%.

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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

Edward Fu, Chief Financial Officer, Minto Apartment Real Estate Investment Trust, Tel: [phone]