— Same Property Portfolio revenue and NOI growth of 9.3% and 11.8%, respectively and variable-rate debt reduction initiatives beginning to positively impact FFO per unit —
"The REIT's operational performance was strong in the second quarter, supported by our high-quality, urban portfolio and strong rental market conditions across all of our markets," said
"Looking ahead, we believe the fundamentals driving our business including
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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. |
Q2 2023 Highlights
- Average monthly rent was
$1,801 , an increase of 6.6% compared to the second quarter endedJune 30, 2022 ("Q2 2022"). Average monthly rent for the Same Property Portfolio2was$1,785 , an increase of 6.3% compared to Q2 2022; - Average occupancy of unfurnished suites increased to 97.0%, compared to 94.7% in Q2 2022;
- The REIT executed 495 new leases, achieving an average rental rate that was 16.2% higher than the expiring rents. As rental markets have continued to strengthen, the gain-to-lease potential on sitting rents increased sequentially to 16.1% from 15.3% at the end of Q1 2023;
- Revenue for the Same Property Portfolio was
$36.7 million , an increase of 9.3% compared to Q2 2022; total revenue was$39.4 million , an increase of 11.0% compared to Q2 2022; - NOI for the Same Property Portfolio was
$23.1 million , an increase of 11.8% compared to Q2 2022; NOI was$24.6 million , an increase of 12.5% compared to Q2 2022; - NOI margin for the Same Property Portfolio increased to 62.8%, compared to 61.4% in Q2 2022; NOI margin increased to 62.4%, compared to 61.5% in Q2 2022;
- Net loss and comprehensive loss was
$43.0 million , compared to net income and comprehensive income of$183.5 million for Q2 2022; - Normalized Funds from Operations ("Normalized FFO") were
$13.9 million or $0.2125 per unit, a 1.2% increase over Q2 2022; Funds from Operations ("FFO") were$11.9 million , or$0.1817 per unit, compared to$13.7 million , or $0.2100 per unit, in Q2 2022; - Normalized Adjusted Funds from Operations ("Normalized AFFO") were
$12.2 million or$0.1860 per unit a 1.1% increase over Q2 2022; Adjusted Funds from Operations ("AFFO") were$10.2 million , or$0.1552 per unit, compared to$12.0 million , or$0.1840 per unit, in Q2 2022; - Distributions per unit were
$0.1225 , an increase of 3.2% compared to Q2 2022 and representing an AFFO payout ratio of 78.9%; Normalized AFFO payout ratio was 65.9%; - The REIT repositioned 33 suites across its portfolio in Q2 2023, generating an average annual unlevered return of 9.4%;
- The REIT reduced the amount of variable rate debt to 11% of Total Debt from 26% in Q1 2023, a reduction of
$165,921 ; - The REIT repaid both of its variable rate mortgages totalling
$108.4 million with an average interest rate of 7.55% and replaced them with twoCMHC -insured mortgages with fixed stated interest rates between 3.85% and 3.87% that mature in 2033; - The REIT upward refinanced five maturing mortgages that generated incremental net proceeds of
$73.8 million which was used to repay a portion of the REIT's revolving credit facility. The newCMHC -insured fixed rate mortgages bear interest at rates between 3.90% and 4.00% and mature in 2028 and 2033; - Same Property Portfolio annualized turnover of 20.2% improved sequentially from 13.9% for Q1 2023 as it is a stronger leasing season, but was lower than 25.0% for Q2 2022 as tenants opt to stay in place due to tight rental conditions;
- On
June 7, 2023 , the REIT announced an agreement with MPI to terminate the REIT's option to purchase theFifth + Bank property; - On
August 8, 2023 , the REIT waived its right of first offer for three purpose-built rental development opportunities, presented by MPI, that would have been attractive assets for the REIT. The developments are located in the Oakridge neighbourhood ofVancouver in close proximity to the Cambie Corridor Planning Program,Mississauga inToronto , andDanforth Village inToronto . Additionally, the REIT waived on four other opportunities inVancouver andToronto during the previous three quarters; and, - The REIT's management and its partner have decided to temporarily postpone the construction start of the
High Park Village intensification, originally scheduled for the second quarter of 2024.
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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 Q2 2023 and Q2 2022. |
Financial Summary
( | Three months ended | Six months ended | |||||
2023 | 2022 | Variance | 2023 | 2022 | Variance | ||
Revenue from investment properties | $ 39,401 | $ 35,510 | 11.0 % | $ 77,804 | $ 68,036 | 14.4 % | |
Property operating costs | 8,051 | 7,260 | (10.9) % | 15,494 | 13,740 | (12.8) % | |
Property taxes | 3,917 | 3,709 | (5.6) % | 7,925 | 7,374 | (7.5) % | |
Utilities | 2,861 | 2,702 | (5.9) % | 7,077 | 6,297 | (12.4) % | |
NOI | $ 24,572 | $ 21,839 | 12.5 % | $ 47,308 | $ 40,625 | 16.5 % | |
NOI margin (%) | 62.4 % | 61.5 % | 90 bps | 60.8 % | 59.7 % | 110 bps | |
Revenue - Same Property Portfolio | $ 36,726 | $ 33,589 | 9.3 % | $ 72,450 | $ 65,920 | 9.9 % | |
NOI - Same Property Portfolio | 23,068 | 20,628 | 11.8 % | 44,204 | 39,287 | 12.5 % | |
NOI margin (%) - Same Property Portfolio | 62.8 % | 61.4 % | 140 bps | 61.0 % | 59.6 % | 140 bps | |
Interest costs | $ 10,710 | $ 7,512 | (42.6) % | $ 21,378 | $ 13,721 | (55.8) % | |
Net (loss) income and comprehensive (loss) income | $ (43,009) | $ 183,537 | N/A | $ (67,236) | $ 218,177 | (130.8) % | |
FFO | 11,925 | 13,680 | (12.8) % | $ 23,554 | $ 25,659 | (8.2) % | |
FFO per unit | 0.1817 | 0.2100 | (13.5) % | $ 0.3588 | $ 0.4008 | (10.5) % | |
AFFO | 10,188 | 11,983 | (15.0) % | $ 20,121 | $ 22,331 | (9.9) % | |
AFFO per unit | 0.1552 | 0.1840 | (15.7) % | $ 0.3065 | $ 0.3489 | (12.2) % | |
Distribution per unit | 0.1225 | 0.1187 | 3.2 % | $ 0.2450 | $ 0.2375 | 3.2 % | |
AFFO payout ratio | 78.9 % | 65.2 % | (1370) bps | 79.9 % | 68.4 % | (1150) bps | |
Normalized FFO | 13,946 | 13,680 | 1.9 % | 25,661 | 25,659 | — % | |
Normalized FFO per unit | 0.2125 | 0.2100 | 1.2 % | 0.3909 | 0.4008 | (2.5) % | |
Normalized AFFO | 12,209 | 11,983 | 1.9 % | 22,228 | 22,331 | (0.5) % | |
Normalized AFFO per unit | 0.1860 | 0.1840 | 1.1 % | 0.3386 | 0.3489 | (3.0) % | |
Normalized AFFO payout ratio | 65.9 % | 65.2 % | (70) bps | 72.3 % | 68.4 % | (390) bps | |
Average monthly rent | $ 1,801 | $ 1,690 | 6.6 % | $ 1,801 | $ 1,690 | 6.6 % | |
Average monthly rent - Same Property Portfolio | $ 1,785 | $ 1,680 | 6.3 % | $ 1,785 | $ 1,680 | 6.3 % | |
Average occupancy | 97.0 % | 94.7 % | 230 bps | 97.1 % | 94.4 % | 270 bps | |
Average occupancy - Same Property Portfolio | 97.0 % | 94.7 % | 230 bps | 97.1 % | 94.5 % | 260 bps |
Q2 2023 Operating Results
Revenue in Q2 2023 totalled
Average monthly rent at the end of Q2 2023 was
Average occupancy was 97.0% in Q2 2023, compared to 94.7% in Q2 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 8.5% higher (5.4% higher for the Same Property Portfolio) in Q2 2023 compared to Q2 2022, reflecting growth in salaries, repair and maintenance costs, and electricity. Inflationary pressures have moderated from their peak in 2022, and management is confident that its in-place strategies to contain controllable operating expenses will contribute to solid NOI growth.
NOI for Q2 2023 totalled
During Q2 2023, the REIT incurred a net
FFO in Q2 2023 was
The REIT reported a net loss and comprehensive loss of
The REIT paid cash distributions of
Gain-on-Lease, Gain-to-Lease Potential and Repositioning
The REIT signed 495 new leases in Q2 2023, realizing an average gain-on-lease of 16.2%, the third consecutive quarter in which realized gain-on-lease exceeded 16%. This resulted in an annualized incremental revenue gain of approximately
Management estimates that the REIT held embedded gain-to-lease potential in its unfurnished suite portfolio of 16.1% as at
The REIT repositioned a total of 33 suites across its portfolio in Q2 2023, generating an average annual unlevered return on investment of 9.4%. The REIT has a total of 1,918 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, management currently expects to reposition 80 to 120 suites in 2023, a reduction from 259 in 2022.
Balance Sheet and Debt Refinancing Initiatives
During Q2 2023, the REIT executed on its accretive strategy of reducing variable-rate debt exposure by replacing variable-rate debt with long-term fixed-rate
In April and
As a result of the above refinancings occurring in late Q2 2023, the REIT began to see moderation of interest costs at the tail end of the quarter, and expects to see the full effect of these savings through the second half of 2023 and beyond.
Subsequent to Q2 2023, the REIT refinanced Term Debt secured by an
In addition, the REIT is exploring upward refinancing three properties with mortgages maturing in early 2024 that have potential to generate between
As of
The Debt-to-Gross Book Value ("GBV") ratio as at
The REIT's net asset value ("NAV") per unit as at
The REIT continues to maintain a strong financial position. Total liquidity was approximately
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3 These are nominal rates that do not include |
High Park Village Intensification Deferral
The REIT and its partner have decided to temporarily postpone the construction start of the intensification project at the
Conference Call
Management will host a conference call for analysts and investors on
In addition, the call will be webcast live at:
Minto Apartment REIT Q2 2023 Earnings Webcast
A replay of the call will be available until
About
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
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" are calculated as the sum of costs incurred on mortgages, credit facility, and Class
C LP Units and excludes debt retirement costs. - "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.
- "Normalized FFO" is calculated as FFO net of nonrecurring items that occurred during the period which are not indicative of the REIT's typical operating results.
- "Normalized FFO per unit" is calculated as Normalized FFO divided by the weighted average number of Units of the REIT and Class B LP Units of the Partnership outstanding over the period.
- "Normalized AFFO" is calculated as AFFO net of nonrecurring items that occurred during the period which are not indicative of the REIT's typical operating results.
- "Normalized AFFO per unit" is calculated as Normalized AFFO divided by the weighted average number of Units of the REIT and Class B LP Units of the Partnership outstanding over the period.
- "Normalized AFFO payout ratio" is the proportion of the total distributions on Units of the REIT and Class B LP Units of the Partnership to Normalized AFFO.
- "Term Debt" is calculated as the sum of value of fixed rate mortgages, a variable rate mortgage fixed through an interest rate swap and Class
C LP Units of the Partnership. - "Total Debt" is calculated as the sum of value of interest-bearing debt consisting of 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 Term 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 Term 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
( | Three months ended | Six months ended | |||
2023 | 2022 | 2023 | 2022 | ||
Net (loss) income and comprehensive (loss) income | $ (43,009) | $ 183,537 | $ (67,236) | $ 218,177 | |
Distributions on Class B LP Units | 3,154 | 3,058 | 6,309 | 5,762 | |
Issuance costs on Class B LP Units | — | 175 | — | 175 | |
Disposition costs on investment property | — | — | 348 | — | |
Fair value loss (gain) on: | |||||
Investment properties | 45,700 | 2,325 | 59,203 | (12,070) | |
Class B LP Units | 6,696 | (172,772) | 24,982 | (182,335) | |
Interest rate swap | (656) | (776) | (246) | (2,083) | |
Unit-based compensation | 40 | (1,867) | 194 | (1,967) | |
Funds from operations (FFO) | 11,925 | 13,680 | 23,554 | 25,659 | |
Maintenance capital expenditure reserve | (1,510) | (1,506) | (3,030) | (2,942) | |
Amortization of mark-to-market adjustments | (227) | (191) | (403) | (386) | |
Adjusted funds from operations (AFFO) | 10,188 | 11,983 | 20,121 | 22,331 | |
Distributions on Class B LP Units | 3,154 | 3,058 | 6,309 | 5,762 | |
Distributions on Units | 4,886 | 4,758 | 9,772 | 9,516 | |
$ 8,040 | $ 7,816 | $ 16,081 | $ 15,278 | ||
AFFO payout ratio | 78.9 % | 65.2 % | 79.9 % | 68.4 % | |
Weighted average number of Units and Class B LP Units issued and outstanding | 65,642,641 | 65,135,801 | 65,642,641 | 64,013,164 | |
FFO per unit | $ 0.1817 | $ 0.2100 | $ 0.3588 | $ 0.4008 | |
AFFO per unit | $ 0.1552 | $ 0.1840 | $ 0.3065 | $ 0.3489 |
Normalized FFO and Normalized AFFO
( | Three months ended | Six months ended | |||
2023 | 2022 | 2023 | 2022 | ||
FFO | $ 11,925 | $ 13,680 | $ 23,554 | $ 25,659 | |
AFFO | 10,188 | 11,983 | 20,121 | 22,331 | |
Normalizing items | 2,021 | — | 2,107 | — | |
Normalized FFO | $ 13,946 | $ 13,680 | $ 25,661 | $ 25,659 | |
Normalized FFO per unit | $ 0.2125 | $ 0.2100 | $ 0.3909 | $ 0.4008 | |
Normalized AFFO | 12,209 | 11,983 | 22,228 | 22,331 | |
Normalized AFFO per unit | $ 0.1860 | $ 0.1840 | $ 0.3386 | $ 0.3489 | |
Normalized AFFO payout ratio | 65.9 % | 65.2 % | 72.3 % | 68.4 % |
NAV and NAV per unit
( | As at | |
Net assets (Unitholders' equity) | $ 1,136,529 | $ 1,213,537 |
Add: Class B LP Units | 386,840 | 361,858 |
NAV | $ 1,523,369 | $ 1,575,395 |
Number of Units and Class B LP Units | 65,642,641 | 65,642,641 |
NAV per unit | $ 23.21 | $ 24.00 |
SOURCE
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