Minto Apartment REIT Reports Strong 2022 Third Quarter Financial Results and Announces Distribution Increase

— Robust growth in key financial metrics, reflecting strengthening rental demand —

OTTAWA, ON, Nov. 8, 2022 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the third quarter and nine months ended September 30, 2022 ("Q3 2022" and "YTD 2022", respectively). The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q3 2022 and YTD 2022 are available on the REIT's website at www.mintoapartments.com and at www.sedar.com.[1]

"Our business continued to demonstrate very strong momentum in the third quarter supported by the attractiveness of renting compared to home ownership, a return to downtown living and immigration," said Michael Waters, the REIT's Chief Executive Officer. "We generated the second highest quarterly gain-to-lease in the REIT's history during Q3, and our average rent per suite surpassed $1,700 for the first time.

Going forward, we believe our high quality, urban portfolio is well-positioned to capitalize on current market dynamics and our talented operations team will continue to drive NOI and occupancy. Furthermore, we will continue to evaluate our capital allocation decisions in this volatile capital markets environment to balance growing and upgrading our portfolio in target markets while simultaneously maximizing our cash flow per unit over the long term."

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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.

Q3 2022 Highlights

• Average monthly rent was $1,714, an increase of 3.8% compared to the third quarter ended September 30, 2021 ("Q3 2021"). Average monthly rent for the Same Property Portfolio² was $1,720, an increase of 4.2% compared to Q3 2021;
• Average occupancy of unfurnished suites increased to 96.2%, compared to 92.9% in Q3 2021 and 94.7% in the second quarter of 2022 ("Q2 2022"). End of period occupancy at Q3 2022 was 97.4% compared to 94.8% at the end of Q3 2021;
• Total revenue was $37.8 million, an increase of 21.1% compared to Q3 2021; total revenue for the Same Property Portfolio was $34.3 million, an increase of 9.8% compared to Q3 2021;
• Net Operating Income ("NOI") was $24.2 million, an increase of 24.8% compared to Q3 2021; NOI for the Same Property Portfolio was $22.0 million, an increase of 13.3% compared to Q3 2021;
• NOI margin was 64.0%, an improvement of 190 basis points compared to Q3 2021;
• The REIT executed 574 new leases, achieving an average rental rate that was 14.5% higher than the expiring rents, representing the second highest quarterly gain-to-lease in the REIT's history. As rental markets have strengthened, the gain-to-lease potential on sitting rents increased sequentially to 12.1% from 10.9% at the end of the Q2 2022;
• Funds from Operations ("FFO") increased by 25.7% to $15.7 million, compared to $12.5 million in Q3 2021; FFO per unit increased by 12.8% to $0.2380, compared to $0.2109 in Q3 2021. Excluding the impact of proceeds from a one-time insurance recovery of approximately $594,000, FFO increased by 20.9% and FFO per unit increased by 8.6% both compared to Q3 2021;
• Adjusted Funds from Operations ("AFFO") increased by 28.2% to $14.0 million, compared to $10.9 million in Q3 2021; AFFO per unit increased by 15.1% to $0.2121, compared to $0.1842 in Q3 2021. Excluding the impact of proceeds from a one-time insurance recovery of approximately $594,000, AFFO increased by 22.7% and AFFO per unit increased by 10.2% both compared to Q3 2021;
• Net income and comprehensive income was $39.7 million, compared to $80.9 million in Q3 2021;
• The REIT repositioned 75 suites across its portfolio in Q3 2022 generating an annualized return of 9.4%;
• During Q3 2022 the REIT acquired 182,227 Units under its previously announced normal course issuer bid at an average price of $15.15 per unit;
• On September 23, 2022, the REIT announced that its Chief Financial Officer, Julie Morin, will be transitioning back full-time to the Minto Group as Chief Financial Officer following Q3 2022 reporting. Edward Fu, currently the REIT's Vice President, Finance, was selected to succeed her as Chief Financial Officer of the REIT.

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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 Q3 2022 and Q3 2021. 

Subsequent to Quarter End

• The Board of Trustees approved an annual distribution increase of $0.015 per Unit or 3.2%, effective for the November 2022 cash distribution.
• The REIT released its 2021 Environmental Social and Governance Report ("ESG Report") including the results from its 2022 Green Real Estate Sustainability Benchmark ("GRESB") assessment. The REIT earned a GRESB score of 80, a 3-Star GRESB Rating, and Green Star Designation. This score is a ten-point improvement over 2021 and places the REIT fourth out of 16 in our peer comparison group of North American residential firms. The REIT's ESG Report can be found by visiting its website at www.mintoapartments.com/2021ESGreport.

Financial Summary

($000's except per unit and per suite amounts)	Three months ended September 30,				Nine months ended September 30,
	2022	2021	Variance		2022	2021	Variance
Revenue from investment properties	$     37,838	$     31,234	21.1 %		$    105,874	$      91,118	16.2 %
Property operating costs	7,233	6,228	(16.1) %		20,973	17,791	(17.9) %
Property taxes	3,870	3,436	(12.6) %		11,244	9,814	(14.6) %
Utilities	2,511	2,165	(16.0) %		8,808	7,206	(22.2) %
NOI	$     24,224	$     19,405	24.8 %		$      64,849	$      56,307	15.2 %
NOI margin (%)	64.0 %	62.1 %	190 bps		61.3 %	61.8 %	(50) bps
Revenue - Same Property Portfolio	$     34,308	$     31,234	9.8 %		$      98,891	$      91,118	8.5 %
NOI - Same Property Portfolio	21,983	19,405	13.3 %		60,575	56,307	7.6 %
NOI margin (%) - Same Property Portfolio	64.1 %	62.1 %	200 bps		61.3 %	61.8 %	(50) bps
Finance costs - operations	$     11,923	$       8,915	(33.7) %		$      31,406	$      26,512	(18.5) %
Net income and comprehensive income	$     39,655	$     80,928	(51.0) %		$    257,832	$      69,228	272.4 %
FFO^3	15,654	12,453	25.7 %		$      41,313	$      35,285	17.1 %
FFO per unit[3]	0.2380	0.2109	12.8 %		$      0.6394	$      0.5976	7.0 %
AFFO^3	13,952	10,883	28.2 %		$      36,283	$      30,578	18.7 %
AFFO per unit^3	0.2121	0.1842	15.1 %		$      0.5616	$      0.5179	8.4 %
Distribution per unit	0.1187	0.1138	4.3 %		$      0.3561	$      0.3413	4.3 %
AFFO payout ratio	55.9 %	61.7 %	580 bps		63.6 %	65.9 %	230 bps
Average monthly rent per suite	$       1,714	$       1,651	3.8 %		$        1,714	$        1,651	3.8 %
Average monthly rent per suite - Same Property Portfolio	$       1,720	$       1,651	4.2 %		$        1,720	$        1,651	4.2 %
Occupancy - average for period	96.21 %	92.87 %	334 bps		95.05 %	91.67 %	338 bps
Occupancy - average for period - Same Property Portfolio	96.33 %	92.87 %	346 bps		95.13 %	91.67 %	346 bps

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³  In Q3 2022, the REIT received a one-time insurance recovery of approximately $594,000. Excluding these proceeds, increases in FFO and FFO per unit in Q3 2022 were 20.9% and 8.6% respectively compared to Q3 2021 and increases in FFO and FFO per unit for YTD 2022 were 15.3% and 5.3% respectively compared to YTD 2021. Excluding these proceeds, increases in AFFO and AFFO per unit in Q3 2022 were 22.7% and 10.2% respectively compared to Q3 2021 and increases in AFFO and AFFO per unit for YTD 2022 were 16.6% and 6.5% respectively compared to YTD 2021.

Q3 2022 Operating Results

Revenue in Q3 2022 totalled $37.8 million, an increase of 21.1% from $31.2 million in Q3 2021. The increased revenue in Q3 2022 reflected higher occupancy, higher average rents, reduced amortization of promotions, and property acquisitions completed subsequent to Q3 2021 (Le Hill-Park in Montreal, Niagara West in Toronto and The International in Calgary). Same Property Portfolio revenue was $34.3 million, an increase of 9.8% from Q3 2021, reflecting the improved occupancy, higher average monthly rent and reduced amortization of promotions.

Average monthly rent at the end of Q3 2022 was $1,714, an increase of 3.8% compared to $1,651 as at the end of Q3 2021. Average monthly rent for the Same Property Portfolio was $1,720 at the end of Q3 2022, an increase of 4.2% compared to the end of Q3 2021.

Average occupancy was 96.2% in Q3 2022, compared to 92.9% in Q3 2021 and 94.7% in Q2 2022. The significant year-over-year increase in occupancy reflected consistent improvement in urban rental market conditions in the REIT's major markets.

Operating expenses were 15.1% higher (4.2% for the Same Property Portfolio) in Q3 2022 compared to Q3 2021, reflecting inflationary pressures and acquisitions completed subsequent to Q3 2021. The REIT continues to evaluate opportunities for operational efficiencies and cost reductions. While inflation has placed pressure on operating expenses, it has also increased rental rates which help absorb, or at least partly offset, the rise in costs.

NOI for Q3 2022 totalled $24.2 million, representing 64.0% of revenue, an increase of 24.8% compared to $19.4 million, or 62.1% of revenue, in Q3 2021. Same Property Portfolio NOI for Q3 2022 was $22.0 million, representing 64.1% of revenue, an increase of 13.3% compared to $19.4 million, or 62.1% of revenue, in Q3 2021. The increase in NOI in Q3 2022 reflected higher revenue, partially offset by higher operating expenses as noted above, as well as property acquisitions completed subsequent to Q3 2021. The increase in Same Property Portfolio NOI reflected the higher average monthly rent and occupancy, partially offset by higher operating expenses.

FFO in Q3 2022 increased to $15.7 million compared to $12.5 million in Q3 2021. FFO per unit was $0.2380 in Q3 2022, an increase of 12.8% compared to Q3 2021. The higher FFO in Q3 2022 primarily reflected the positive NOI variance. AFFO in Q3 2022 increased to $14.0 million compared to $10.9 million in Q3 2021. AFFO per unit was $0.2121 per unit in Q3 2022, an increase of 15.1% compared to Q3 2021. The increase in AFFO for Q3 2022 was primarily due to the higher FFO, partially offset by an increase in the maintenance capital expenditure reserve from the addition of the three properties acquired subsequent to Q3 2021.

The REIT reported net income and comprehensive income of $39.7 million in Q3 2022, compared to $80.9 million in Q3 2021. The negative variance was primarily attributable to a fair value loss on investment properties of $18.7 million, compared to a gain of $34.7 million in Q3 2021. The fair value loss reflects capitalization rate expansion on select properties and an increased capital reserve offset by higher forecasted NOI across the portfolio.

The REIT paid cash distributions of $0.1187 per unit for Q3 2022, an increase of 4.3% compared to Q3 2021 and representing an AFFO payout ratio of 55.9%. Cash distributions of $0.1138 per unit were paid in Q3 2021, representing an AFFO payout ratio of 61.7%.

Gain-to-Lease and Repositioning

The REIT signed 574 new leases in Q3 2022, realizing an average gain-to-lease of 14.5%, the second highest quarterly gain in the REIT's history. This resulted in an annualized incremental revenue gain of approximately $1.4 million. By comparison, the REIT realized gains on new leases of 4.4% in Q3 2021 and 12.1% in Q2 2022. Significant gains were realized in all markets during Q3 2022, including a 15.5% gain in Toronto. This strong performance reflected the continued improvement in urban rental market conditions, which is supported by increased immigration and the growing affordability gap between rentals and home ownership. As a result of increased demand for rentals, the REIT has increased rental rates and reduced the use of promotions to drive occupancy.

Management estimates that the REIT holds embedded gain-to-lease potential in its unfurnished suite portfolio of 12.1% as at September 30, 2022, representing future annualized embedded potential revenue of approximately $16.0 million. That compares to embedded gain-to-lease potential of 6.6% and an estimated annualized revenue growth opportunity of $7.3 million as at September 30, 2021, and 10.9% or $14.0 million as at June 30, 2022. The embedded gain-to-lease potential is increasing as Canadian urban rental markets strengthen, backed by strong leasing and higher average monthly rents achieved.

The REIT repositioned a total of 75 suites across its portfolio in Q3 2022. The annualized revenue gains realized on the repositioned suites generated an average annual unlevered return on investment of 9.4%. The REIT has a total of 2,024 suites remaining to be repositioned under its current program and expects to reposition an additional 40 to 50 suites in Q4 of 2022, subject to turnover.

Property Development and Intensification

The REIT has eight projects in its development pipeline at various stages of the development process. Three of these projects involve the intensification of existing properties and five projects have been financed through the REIT's convertible development loan program.

Six of these eight total opportunities are under construction, and the eight projects combined have the potential to increase the REIT's suite count by 2,301 suites by 2029, a 28% increase from the current level. Updated information on these opportunities, including development timelines and estimated project costs, is available in the REIT's Q3 2022 MD&A.

The Minto Group has agreed to extend the maturity of the REIT's convertible development loan on Fifth + Bank in Ottawa to July 31, 2023 and its option to purchase the property at 95% of its then-appraised fair value has been extended to June 30, 2023. Fifth + Bank is fully leased and stabilized, with current occupancy of 100% and is not subject to rent control. The REIT has not yet made a decision regarding the exercise of its purchase option and any decision will be based on market conditions and other factors at that time.  

Increase to Monthly Distributions

The Board of Trustees approved a $0.015 or 3.2% increase to the REIT's annual distribution from $0.4750 per Unit to $0.49 per Unit. The monthly distribution will be $0.04083 per Unit, increased from $0.03958 per Unit. The increase will be effective for the REIT's November 2022 cash distribution, to be paid on December 15, 2022.

The distribution increase highlights the positive business outlook shared by our management team and Board of Trustees. While steadily increasing distributions is a key part of our long-term strategy, we are also committed to maintaining a conservative AFFO payout ratio, allowing us to continue to reinvest capital to fund future growth.

Balance Sheet

As of September 30, 2022, the REIT had total debt outstanding of $1.08 billion, with a weighted average interest rate on fixed rate debt of 2.90% and a weighted average term to maturity on fixed rate debt of 4.48 years. The Debt-to-Gross Book Value ("GBV") ratio was 39.9%. The REIT's net asset value ("NAV") per unit as at September 30, 2022 was $24.12, an increase of 0.5% from $24.00 as at December 31, 2021.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $145.1 million as at September 30, 2022, with a liquidity ratio (total liquidity/total debt) of 13.4%.

Conference Call

Management will host a conference call for analysts and investors on Wednesday, November 9, 2022 at 11:00 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:

Minto Apartment REIT Q3 2022 Earnings Webcast

A replay of the call will be available until Wednesday, November 16, 2022. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 401391 #). 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.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 8, 2022, 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-GAAP 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 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:

• "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 the Partnership outstanding over the period. The REIT regards FFO per unit as a key measure of operating performance.
• "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.
• "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.
• "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.
• "Gross Book Value" is defined as the total assets of the REIT as at the balance sheet date.
• "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.
• "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.
• "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.
• "gain-to-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.
• "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 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.

Reconciliations of Non-IFRS Financial Measures and Ratios

FFO and AFFO

($000's except unit and per unit amounts)	Three months ended September 30,			Nine months ended September 30,
	2022	2021		2022	2021
Net income and comprehensive income	$                 39,655	$                 80,928		$               257,832	$                 69,228
Distributions on Class B LP Units	3,058	2,591		8,820	7,771
Issuance costs on Class B LP Units	—	—		175	—
Fair value loss (gain) on:
Investment properties	18,689	(34,663)		6,619	(86,055)
Class B LP Units	(44,813)	(35,976)		(227,148)	45,310
Interest rate swap	(302)	(145)		(2,385)	(1,204)
Unit-based compensation	(633)	(282)		(2,600)	235
Funds from operations (FFO)	15,654	12,453		41,313	35,285
Maintenance capital expenditure reserve	(1,524)	(1,377)		(4,466)	(4,130)
Amortization of mark-to-market adjustments	(178)	(193)		(564)	(577)
Adjusted funds from operations (AFFO)	13,952	10,883		36,283	30,578
Distributions on Class B LP Units	3,058	2,591		8,820	7,771
Distributions on Units	4,746	4,127		14,262	12,380
	$                   7,804	$                   6,718		$                 23,082	$                 20,151
AFFO payout ratio	55.9 %	61.7 %		63.6 %	65.9 %
Weighted average number of Units and Class B LP Units issued and outstanding	65,769,904	59,043,912		64,611,757	59,043,912
FFO per unit	$                 0.2380	$                 0.2109		$                 0.6394	$                 0.5976
AFFO per unit	$                 0.2121	$                 0.1842		$                 0.5616	$                 0.5179

NAV and NAV per unit

($000's except unit and per unit amounts)	As at
	September 30, 2022	December 31, 2021
Net assets (Unitholders' equity)	$                     1,250,807	$                     1,010,001
Add: Class B LP Units	332,241	498,415
NAV	$                     1,583,048	$                     1,508,416
Number of Units and Class B LP Units	65,642,641	62,838,912
NAV per unit	$                             24.12	$                             24.00

SOURCE Minto Apartment Real Estate Investment Trust

Julie Morin, Chief Financial Officer, Minto Apartment Real Estate Investment Trust Tel: [phone]