Minto Apartment REIT Reports Strong 2023 Third Quarter Financial Results and Announces Distribution Increase
— Normalized FFO and AFFO per unit continues to accelerate achieving growth of 4.4% and 5.3%, respectively. Distribution increase of 3.1% —
OTTAWA, ON, Nov. 7, 2023 /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, 2023 ("Q3 2023" and "YTD 2023", respectively). The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q3 2023 and YTD 2023 are available on the REIT's website at www.mintoapartmentreit.com and at www.sedarplus.ca.1
"Minto Apartment REIT delivered strong operational performance in the third quarter. We generated an average gain of 17.0% on new leases, which was the highest quarterly level in the REIT's history, which contributed to solid growth in Same Property Portfolio revenue and NOI." said Jonathan Li, President and Chief Executive Officer of the REIT. "We continue to focus on improving our balance sheet and making disciplined capital allocation decisions which position us well to deliver FFO and AFFO per unit growth, even in the current high interest rate environment, as evidenced by the quarter."
"Lastly, we are pleased to announce an increase to our monthly distributions, something we have done every year since the REIT was created. The increase highlights the confidence we have in our business outlook for 2024 while also balancing prudent capital management by further reducing our AFFO payout ratio. We expect that industry fundamentals will continue to support robust demand for rental housing for the foreseeable future, which should benefit our high quality, urban rental portfolio."
Q3 2023 Highlights
- Average monthly rent was $1,837, an increase of 7.2% compared to the third quarter ended September 30, 2022 ("Q3 2022"). Average monthly rent for the Same Property Portfolio2 was $1,819, an increase of 6.7% compared to Q3 2022;
- Closing occupancy of unfurnished suites increased to 97.8% at September 30, 2023, compared to 97.3% at September 30, 2022;
- Average occupancy of unfurnished suites increased to 96.9%, compared to 96.2% in Q3 2022;
- The REIT executed 510 new leases, achieving an average rental rate that was 17.0% higher than the expiring rents, representing 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 17.7% from 16.1% at the end of the second quarter of 2023 ("Q2 2023");
- Annualized turnover for the Same Property Portfolio was 26.0%, in-line with historical seasonal norms;
- Revenue for the Same Property Portfolio was $37.0 million, an increase of 5.8% compared to Q3 2022; total revenue was $39.8 million, an increase of 5.3% compared to Q3 2022;
- Revenue for the Same Property Portfolio, excluding furnished suites, was $34.8 million, an increase of 7.8% compared to Q3 2022; total revenue, excluding furnished suites, was $37.6 million, an increase of 7.1% compared to Q3 2022;
- NOI for the Same Property Portfolio was $24.0 million, an increase of 6.9% compared to Q3 2022; total NOI was $25.8 million, an increase of 6.6% compared to Q3 2022;
- NOI margin for the Same Property Portfolio increased to 64.8%, an increase of 60 bps from Q3 2022; total NOI margin was 64.8%, an increase of 80 bps from Q3 2022;
- Normalized Funds from Operations ("Normalized FFO") were $15.7 million or $0.2390 per unit, an increase of 4.4%, compared to $15.1 million, or $0.2290 per unit, in Q3 2022;
- Normalized Adjusted Funds from Operations ("Normalized AFFO") were $14.0 million or $0.2139 per unit, an increase of 5.3%, compared to $13.4 million, or $0.2031 per unit, in Q3 2022;
- Distributions per unit were $0.1225, an increase of 3.2% compared to Q3 2022 and representing an AFFO payout ratio of 57.3%;
- The REIT repositioned 33 suites across its portfolio in Q3 2023, generating an average annual unlevered return of 8.8%;
- The REIT reduced its variable rate debt exposure by upward refinancing Term Debt of $44.9 million, generating incremental proceeds of $24.1 million that were used to pay down the credit facility. Variable rate debt represented 10% of Total Debt at quarter end;
- On September 18, 2023, the REIT announced that the Toronto Stock Exchange accepted its notice to make a normal course issuer bid ("NCIB") for a portion of its Units. The NCIB is active until September 19, 2024 and enables the REIT to acquire up to 3,282,682 Units. The REIT's previous NCIB expired on July 20, 2023. The REIT did not purchase and cancel any Units during the quarter.
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.
($000's except per unit and per suite amounts)
Three months ended September 30,
Nine months ended September 30,
Revenue from investment properties
Property operating costs
NOI margin (%)
Revenue - Same Property Portfolio
NOI - Same Property Portfolio
NOI margin (%) - Same Property Portfolio
Net income (loss) and comprehensive income (loss)
FFO per unit
AFFO per unit
Distribution per unit
AFFO payout ratio
Normalized FFO per unit
Normalized AFFO per unit
Normalized AFFO payout ratio
Average monthly rent
Average monthly rent - Same Property Portfolio
Closing occupancy - Same Property Portfolio
Average occupancy - Same Property Portfolio
Normalized FFO and AFFO Reconciliation
The following is a reconciliation of the non-IFRS measures Normalized FFO and AFFO:
($000's except unit and per unit amounts)
Three months ended September 30,
Nine months ended September 30,
Normalized FFO per unit
Normalized AFFO per unit
Normalized AFFO payout ratio
Q3 2023 Operating Results
Revenue in Q3 2023 totalled $39.8 million, an increase of 5.3% from $37.8 million in Q3 2022. The increased revenue in Q3 2023 primarily reflected higher average monthly rents and improved occupancy. Same Property Portfolio revenue was $37.0 million, an increase of 5.8% from Q3 2022, reflecting the higher average monthly rent, improved occupancy, and reduced promotion amortization. Revenue, excluding furnished suites, was $37.6 million, an increase of 7.1% from $35.1 million in Q3 2022. Same Property Portfolio revenue, excluding furnished suites, was $34.8 million, an increase of 7.8% from $32.3 million in Q3 2022.
Average monthly rent at the end of Q3 2023 was $1,837, an increase of 7.2% compared to the end of Q3 2022. Average monthly rent for the Same Property Portfolio was $1,819 at the end of Q3 2023, representing a year-over-year increase of 6.7%.
Average occupancy increased to 96.9% in Q3 2023, compared to 96.2% in Q3 2022. Closing occupancy finished strong at 97.8% as at September 30, 2023, compared to 97.3% at September 30, 2022.
The year-over-year growth in average monthly rent and occupancy reflected continued strong rental demand in the REIT's markets.
Operating expenses were 2.9% higher (3.8% higher for the Same Property Portfolio) in Q3 2023 compared to Q3 2022, reflecting growth in salaries, repair and maintenance costs, and property taxes. Management continues to explore strategies to contain controllable expenses through new property technology innovations and other efficiencies.
NOI for Q3 2023 totalled $25.8 million, representing 64.8% of revenue, an increase of 6.6% compared to $24.2 million, or 64.0% of revenue, in Q3 2022. Same Property Portfolio NOI for Q3 2023 was $24.0 million, representing 64.8% of revenue, an increase of 6.9% compared to $22.5 million, or 64.2% of revenue, in Q3 2022. The increases in NOI and Same Property Portfolio NOI in Q3 2023 reflected higher revenue from unfurnished suites, which outpaced increased operating expenses.
Funds from Operations ("FFO") in Q3 2023 were $15.7 million, or $0.2390 per unit, compared to $15.7 million, or $0.2380 per unit, in Q3 2022. Adjusted Funds from Operations ("AFFO") in Q3 2023 were $14.0 million, or $0.2139 per unit, compared to $14.0 million, or $0.2121 per unit, in Q3 2022. During Q3 2022, FFO and AFFO were positively impacted by non-recurring insurance recoveries totalling $0.6 million. Excluding this impact, Normalized FFO per unit and Normalized AFFO per unit for Q3 2023 increased by 4.4% and 5.3%, respectively, compared to Q3 2022.
The REIT reported net income and comprehensive income of $27.8 million in Q3 2023, compared to $39.7 million in Q3 2022. The variance was primarily attributable to a larger non-cash, fair value loss on investment properties in Q3 2023 compared to Q3 2022, and a smaller non-cash fair value gain on Class B LP Units in Q3 2023 compared to Q3 2022. The fair value loss on investment properties of $21.2 million in Q3 2023 reflected higher capitalization rates within certain geographies in the residential portfolio. The fair value gain on Class B LP Units of $35.8 million in Q3 2023 reflected the decrease in the REIT's Unit price during the quarter.
The REIT paid cash distributions of $0.1225 per unit for Q3 2023, an annual increase of 3.2% compared to Q3 2022 and representing an AFFO payout ratio of 57.3%. Cash distributions of $0.1187 per unit were paid in Q3 2022, representing an AFFO payout ratio of 55.9%, or 58.4% on a normalized basis.
Gain-on-Lease, Gain-to-Lease Potential and Repositioning
The REIT signed 510 new leases in Q3 2023, realizing an average gain-on-lease of 17.0%. This was the highest quarterly gain-on-lease in the REIT's history, and the fourth consecutive quarter in which realized gain-on-lease exceeded 16%. It resulted in an annualized incremental revenue gain in the quarter of approximately $1.5 million. By comparison, the REIT realized gains on new leases of 14.5% in Q3 2022 and 16.2% in Q2 2023. The REIT realized significant double-digit gain-on-lease in all markets during Q3 2023, supported by strong Canadian urban rental market conditions.
Same Property Portfolio annualized suite turnover of 26% was more in-line with historical seasonal norms compared to the first two quarters of 2023. This was led by annualized turnover of 41% in Alberta, where availability of affordable homes in the province and tenant departures arising from the loss of promotions granted in the past allowed tenants to consider other housing options. Annualized turnover in Ottawa and Montreal was 29% and 22%, respectively. This was driven by new supply in downtown Ottawa while Montreal was driven by the movement of the student population. Toronto experienced reduced annualized turnover of 16% as tenants opted to stay in place due to rising market rents. Despite higher turnover, the REIT maintained consistent occupancy as move-ins kept pace with move-outs, facilitating gain-on-lease, and resulting in Same Property Portfolio closing occupancy of 97.8% at September 30, 2023. Despite the robust leasing activity in Q3 2023, Management expects turnover to slow relative to historical seasonal norms in the colder quarters of Q4 2023 and Q1 2024.
Management estimates that the REIT held embedded gain-to-lease potential in its unfurnished suite portfolio of 17.7% as at September 30, 2023, representing future annualized embedded potential revenue of approximately $24.9 million. That compares to embedded gain-to-lease potential of 12.1% and an estimated annualized revenue growth opportunity of $16.0 million as at September 30, 2022, and 16.1% or $22.1 million as at June 30, 2023. Gain-to-lease potential grew by 160 bps over Q2 2023, driven by increased market rents in all geographies, largely led by Toronto. Management expects that the REIT will be able to realize a significant portion of the gain-to-lease potential over a period of four to six years.
The REIT repositioned a total of 33 suites across its portfolio in Q3 2023, generating an average annual unlevered return on investment of 8.8%. The REIT has a total of 1,885 suites remaining to be repositioned under its current program. Due to the continued strength in the Canadian rental market, combined with decreasing vacancy and turnover in certain markets, Management currently expects to reposition a total of 110 to 120 suites in 2023, a reduction from 259 in 2022.
Balance Sheet and Debt Refinancing Initiatives
During Q3 2023, the REIT continued to execute on its strategy to reduce variable rate debt. In August 2023, the REIT upward financed $44.9 million of Term Debt secured by an Ottawa property, generating $24.1 million of incremental proceeds that were used to further repay the credit facility. As a result of efforts to reduce variable rate debt during YTD 2023, the REIT's variable rate debt exposure as at September 30, 2023 was limited to the credit facility and represented 10% of Total Debt, compared to 26% at the end of Q1 2023.
Management is also continuing to explore upward refinancing for three properties with mortgages maturing in early 2024 that have the potential to generate $55 million to $65 million of incremental proceeds. Management will carefully evaluate the impact that each potential financing has on FFO per unit by considering a variety of factors.
As of September 30, 2023, the REIT had Total Debt outstanding of $1.16 billion, with a weighted average effective interest rate on Term Debt of 3.38% and a weighted average term to maturity on Term Debt of 6.16 years.
The Debt-to-Gross Book Value ("GBV") ratio as at September 30, 2023 was 42.8%.
The REIT's net asset value ("NAV") per unit as at September 30, 2023 was $23.01, a decline from $23.21 as at June 30, 2023, primarily reflecting a fair value loss on investment properties of $21.2 million in Q3 2023. The fair value loss reflected increases in capitalization rates in certain geographies and increased capital expenditure reserve, partially offset by increased forecast NOI.
The REIT continues to maintain a strong financial position. Total liquidity was approximately $138.3 million as at September 30, 2023, with a liquidity ratio (Total liquidity/Total Debt) of 11.9%.
Capital Recycling Update
The REIT continues with the sale of its two remaining Edmonton assets, which remains subject to financing assumption approvals by the Canada Mortgage and Housing Corporation and the lender. Capital recycling is an attractive source of capital for the REIT, and Management continues to opportunistically pursue additional select asset sales, however there can be no assurance that a definitive agreement will be executed.
Increase to Monthly Distributions
The REIT is pleased to announce that the Board of Trustees approved a $0.015 or 3.1% increase to the REIT's annual distribution from $0.4900 per unit to $0.5050 per unit. The monthly distribution will be $0.04208 per unit, up from $0.04083 per unit. The increase will be effective for the REIT's November 2023 cash distribution, to be paid on December 15, 2023.
This represents the fifth consecutive year in which the REIT has increased distributions. The increase underscores the positive outlook for the REIT's business that is shared by Management and the Board of Trustees. While steadily increasing distributions is a key element of the REIT's strategy, the REIT expects to continue maintaining a conservative AFFO payout ratio, allowing for the reinvestment of capital to fund growth.
Management will host a conference call for analysts and investors on Wednesday, November 8, 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/45faoZo 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:
A replay of the call will be available until Wednesday, November 15, 2023. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 082182 #). 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 and Calgary. For more information on Minto Apartment REIT, please visit the REIT's website at: www.mintoapartmentreit.com.
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.sedarplus.ca). 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 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 limited partnership units of Minto Apartment Limited 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 limited partnership units of Minto Apartment Limited Partnership to AFFO. The REIT uses AFFO payout ratio in assessing its capacity to make