News & Press

— Board of Trustees approves 3.4% increase to monthly distribution, reflecting strong AFFO¹ growth and conservative AFFO¹ payout ratio —

OTTAWA, ON, Aug. 11, 2020 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced its financial results for the second quarter ("Q2 2020") and six months ended June 30, 2020. The Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis ("MD&A") for Q2 2020 and the six months ended June 30, 2020 are available on the REIT's website at www.mintoapartments.com and at www.sedarplus.ca.

Q2 2020 Highlights

• Total revenue was $31.3 million, an increase of 26.3% from the three months ended June 30, 2019 ("Q2 2019"); same property revenue² of $22.6 million decreased 0.9% from Q2 2019; same property revenue² excluding furnished suites was $20.8 million, an increase of 3.1% from Q2 2019;
   
• Net Operating Income ("NOI")¹ was $20.0 million, an increase of 26.8% from Q2 2019; same property NOI^1,2 of $14.2 million decreased 1.7% from Q2 2019; same property NOI^1,2 excluding furnished suites was $13.2 million up 4.5% from Q2 2019;
   
• NOI¹ margin was 63.9%, an increase of 20 basis points ("bps") from Q2 2019; same property NOI^1,2 margin was 62.9%, 40 bps lower than Q2 2019; same property NOI^1,2 margin excluding furnished suites was 63.5%, 90 bps higher than Q2 2019;
   
• Net income and comprehensive income was $12.1 million, compared to $48.8 million in Q2 2019;
   
• Funds from Operations ("FFO")¹ increased by 29.6% to $12.7 million, compared to $9.8 million in Q2 2019; FFO¹ per unit³ declined by 0.1% to $0.2144 per unit³, compared to $0.2146 in Q2 2019;
   
• Adjusted Funds from Operations ("AFFO")¹ increased by 31.4% to $11.1 million, compared to $8.4 million in Q2 2019; AFFO¹ per unit³ increased by 1.3% to $0.1879, compared to $0.1855 in Q2 2019;
   
• The REIT declared distributions during the quarter totaling $0.1100 per unit³ compared to $0.1025 per unit³ in Q2 2019, an increase of 7.3%;
   
• The Q2 2020 AFFO¹ payout ratio was 58.5%, compared to 55.2% in Q2 2019;
   
• Occupancy of available unfurnished suites as at June 30, 2020 was 97.2%, compared to 98.7% as at June 30, 2019; same property occupancy² of available unfurnished suites as at June 30, 2020 was 96.9%, compared to 99.0% as at June 30, 2019;
   
• Average monthly rent as at June 30, 2020, excluding furnished and/or unoccupied suites, was $1,609, an increase of 11.8% compared to $1,439 as at June 30, 2019; average monthly rent for the same property portfolio², excluding furnished and/or unoccupied suites, was $1,511 as at June 30, 2020, an increase of 5.4% compared to $1,434 as at June 30, 2019; and
   
• Debt to Gross Book Value ("Debt-to-GBV")¹ as at June 30, 2020 was 39.5%, compared to 39.3% at the end of 2019.

"Our business has proven to be highly resilient during an unprecedented economic and health crisis." said Michael Waters, the REIT's Chief Executive Officer and President. "While our second quarter results were impacted by the sudden drop in demand for furnished suites due to COVID-19, we still generated 9.1% rent growth on new leases signed for unfurnished suites. We are continuing to collect the vast majority of our monthly rent and occupancy has remained high. We are also maintaining a strong financial position throughout this period of uncertainty, with current liquidity of $193.4 million. The distribution increase announced today reflects our strong track record of AFFO¹ growth to date, as well as our Trustees' confidence that we will continue to execute on our strategy and deliver strong performance for unitholders going forward."

Distribution Increase

The REIT is pleased to announce that its Board of Trustees has approved a 3.4% increase to its cash distributions, raising the monthly unitholder distribution from an annualized rate of $0.4400 per unit³ to $0.4550 per unit³. This measured distribution increase reflects the REIT's strong AFFO¹ growth, relatively low AFFO¹ payout ratio and strong liquidity position. The increase will be effective for the REIT's August 2020 cash distribution, which will be paid on September 15, 2020 to unitholders of record as at August 31, 2020.

COVID-19 Response and Impact on the REIT

COVID-19 continues to impact the REIT's business and the provinces in which it operates. The REIT's priority remains the health and safety of its residents, employees, communities and other stakeholders. The REIT has taken the necessary steps and precautions to mitigate the spread of COVID-19 and to continue to prioritize good health for all its stakeholders.

The vast majority of residents have continued to pay their rent on time during the pandemic and rent collection has been consistent with pre-pandemic cycles. Regardless, the REIT recognizes the burden placed on many residents due to the decline of economic activity in Canada. Accordingly, it has not implemented any rent increases that were scheduled to come into effect during the months of April, May, June and July of 2020. As previously disclosed, the REIT offered a deferred rental payment plan for residents experiencing payment difficulties that allowed residents to defer a portion of their rent for April, May and June of 2020. The majority of the tenants on deferred rental payment plans have made the required payments.

Since its inception, the REIT has generated incremental income by leasing a proportion of its suites on a furnished basis. The proportion of the portfolio offered on a furnished basis varies as a function of demand and has been as high as 5.5% and was 3.3% at June 30, 2020. The demand for furnished suites has been significantly impacted by the COVID-19 crisis due to unprecedented reductions in travel and corporate relocations. Accordingly, the REIT deployed a strategy to transition a portion of its furnished suite inventory to unfurnished. The REIT's furnished suite count declined by eight suites during Q2 2020 and the REIT will continue to reduce its furnished suite inventory through the balance of the year, while exploring opportunities to accelerate repositioning projects by capitalizing on the available suites.

Provincial restrictions on construction activities in Ontario and Quebec were lifted during Q2 2020. The REIT has resumed new value-enhancing capital expenditures in these provinces and continues to make capital improvements and repairs to its properties.

The REIT's suite turnover rate for the trailing twelve month period ended June 30, 2020 was 22%, which was below its historical average. The REIT expects that this turnover rate may continue below historical averages during the COVID-19 crisis and recovery period, but the decline is expected to be temporary.

Growth Initiatives

During Q2 2020, the REIT continued to generate significant organic growth through gain-to-lease activities. The REIT signed 339 new leases of unfurnished suites during the quarter at average monthly rents that were 9.1% higher than the expiring rent, resulting in an increase in annualized revenue of approximately $0.5 million.

Management estimates that the REIT holds an embedded gain-to-lease potential in its unfurnished suite portfolio of 12.3%, representing future annualized embedded potential revenue of approximately $13.4 million. The embedded potential revenue opportunity declined from approximately $14.7 million reported as at March 31, 2020, due to gains realized during Q2 2020 and revised market lease rate estimates.

The REIT also continued to productively deploy capital through its repositioning program in Q2 2020, repositioning a total of 50 suites across its portfolio. The repositioning program was impacted by restrictions imposed by the Ontario and Quebec provincial governments in response to the COVID crisis during Q2 2020. The REIT has 1,989 suites remaining to be repositioned at the following properties: Minto Yorkville, Leslie York Mills, High Park Village, Carlisle, Castle Hill, Rockhill and the Edmonton portfolio. The REIT has temporarily suspended repositioning programs at its three Edmonton properties until rental market conditions improve in Alberta. The REIT is developing repositioning plans for the recently acquired Haddon Hall and Le 4300 properties in Montreal. It has also completed renovations for test suites at the Castleview and Skyline properties in Ottawa and is evaluating the repositioning potential of these properties. In addition, the reduction in demand for furnished suites due to COVID-19 has presented an opportunity to accelerate repositioning at the Roehampton property in Toronto by capitalizing on the availability of suites. The REIT will be developing test suites at the Roehampton property in the fall with the intention to reposition the suites in Q1 2021.

Financial Summary

Q2 2020 Operating Results

Revenue in Q2 2020 totaled $31.3 million, an increase of 26.3% from $24.8 million in Q2 2019. The increase was primarily attributable to the contribution from the five property acquisitions the REIT completed subsequent to March 31, 2019, as well as higher rental rates, partially offset by decreased revenue from furnished suites as a result of lower occupancy and demand for furnished suites due to the COVID-19 pandemic.

As at June 30, 2020, occupancy in the REIT's available unfurnished suite portfolio was 97.2% and average monthly rent was $1,609 per occupied unfurnished suite. That compares to occupancy of 98.7% and average monthly rent of $1,439 per occupied unfurnished suite as at June 30, 2019.

NOI¹ for Q2 2020 totaled $20.0 million, representing 63.9% of revenue, an increase of 26.8% from $15.8 million, or 63.7% of revenue, in Q2 2019. The increase reflects the contribution from the property acquisitions completed subsequent to March 31, 2019, comprising a total of 2,691 suites (1,535 suites at the REIT's proportionate share), partially offset by lower revenue from furnished suites.

Same property revenue² declined 0.9% to $22.6 million in Q2 2020, compared to $22.8 million in Q2 2019, primarily reflecting decreased revenue from furnished s