Minto Apartment REIT Announces ‘Best Quarter’ Since Pandemic • RENX • Real Estate News Exchange


Michael Waters, CEO of Minto Apartment REIT. (Courtesy of Minto)

For Minto Apartment Real Estate Investment Trustthe third quarter of 2022 was “by far our best quarter since the start of the pandemic”, according to its CEO.

Michael Waters made the comment during the REIT’s call with analysts and investors Nov. 9.

Minto Apartment REIT reported year-over-year improvements in same property net operating income (NOI), average monthly rent and average occupancy during the quarter.

Comparable property ROI improved 13.3% to $21.98 million, average monthly rent increased 4.2% to $1,720 (excluding 189 furnished apartments, 160 vacant apartments and 59 apartments offline for repositioning) and the average occupancy rate increased from 92.9% to 96.2%. cent compared to the same quarter a year earlier.

Minto Apartment REIT (MI-UN-T) owned and operated 8,291 units in 32 rental apartments in Toronto, Montreal, Ottawa, Calgary and Edmonton at the end of the quarter, up from 7,277 a year earlier.

“Like many REITs, our third quarter was relatively quiet from a transactional perspective and our strong performance is a direct result of our talented operating team and our best-in-class urban portfolio,” Waters said during the interview. ‘call.

“Our results were also supported by growing demand for urban rental housing, driven by rising interest rates, a growing housing affordability gap, increased immigration, strengthening rental demand from students and a noticeable return to life in the city centre. »

New leases with rent increase

Minto Apartment REIT negotiated 574 new leases during the quarter and realized a 14.5% gain on the maturing rent from $1,675 to $1,918. This is the second highest quarterly gain in the REIT’s history.

“Despite recent increases in market rents, our rental prices remain a very attractive alternative to renting a condo, buying a new home, or owning an existing home with a mortgage. variable rate,” President and Chief Operating Officer Jonathan Li said on the call.

“For example, in Toronto, our rental rate per square foot is $2.62, which is 25% less than renting a condo according to market data from Urbanization.

“Additionally, the cost of owning a $500,000 mortgage would be about $2,900 per month using a 5% interest rate and 25-year amortization.”

Seventy-five units were renovated during the quarter, at an average cost of approximately $55,000 each, generating an average annualized return on investment of 9.4%.

There are 2,024 units remaining to be repositioned under the current program. Minto Apartment REIT plans to reposition 40 to 50 in the fourth quarter, subject to turnover. It repositioned 218 in the first nine months of the year.

Fewer furnished suites

Minto Apartment REIT’s furnished suite count was 189, down 23 from Q3 2021 and close to the trust’s target. Average monthly rent was $5,261, an increase of more than 30% over the prior year, and occupancy increased 560 basis points to 91.9%.

“The reduction in business travel during the pandemic has severely affected demand for serviced suites, but as travel restrictions have been lifted and demand from businesses and the film industry has recovered, demand furnished suites also rebounded,” Li said.

All but one of the furnished suites are in apartments with 185, rue Lyon N. in Ottawa and 61 Yorkville Avenue in Toronto.

Development pipeline

There are eight projects in Minto Apartment REIT’s pipeline, five of which are in active development and one is stabilized.

Five are convertible development loan projects that include exclusive purchase options upon stabilization and three involve densification of properties held by the trust.

The projects have the potential to increase the number of REIT units by 2,301 by 2029.

Fifth + Bank is a fully leased 163-unit mixed-use residential and commercial building in Ottawa’s Glebe neighborhood. Minto Group extended the REIT’s option to purchase the property, which Waters estimates at nearly $100 million, through June 30, 2023.

“It’s absolutely loaded with all the latest proptech and amenities and is in a submarket where there’s probably less than 1% vacancies,” Waters said. “It is an asset that we want to put in the REIT.

“We are sensitive to some of the comments we received in the spring with the timing of International and 39 transactions and obviously sensitive to where our shares are trading. Right now we’re at a sort of 45% reduction from NAV.

“So we got a lot of feedback from investors, very sensitive to the fact that this is a related party transaction and wanting to be absolutely transparent and bend over backwards to ensure that minority shareholders are treated. fairly.”

Lonsdale Square in North Vancouver has been completed and is nearing completion. Market rents in the area have continued to rise, with rental properties reaching rents of around five dollars per square foot.

Pre-letting of the 113 Lonsdale Square suites is expected to begin in the first quarter of 2023. Once stabilized, the REIT will have the option to purchase the project at a 5% discount to the appraised value.

Minto Apartment REIT includes 100 affordable units in its property at 7 and 21 Richgrove Drive. in Etobicoke, with the help of federal and municipal government partners, as part of a 225-unit development. It anticipates stabilization in the second quarter of 2026.

Change of CFO

Chief Financial Officer Julie Morin participated in her final Minto Apartment REIT earnings call as she will return to the Minto Group as Chief Financial Officer. Edward Fu, the trust’s vice president of finance, will take over as the REIT’s chief financial officer.

Morin said the sale of the trust’s three-property Edmonton portfolio continues to progress and he hopes an update can be provided after this quarter.

“If we can potentially reduce exposure to old rent-controlled assets and take that money and invest it in new non-rent-controlled assets, that would be a transaction that makes sense,” Li said in response to a question. on other potential properties. Sales.

Focus on five key strategies

Waters said Minto Apartment REIT has capitalized on the rising cost of home ownership, Canada’s expansive immigration policy and housing supply lagging behind demand.

“We believe the outlook for the Canadian urban rental market will remain strong for the foreseeable future, especially considering that the multi-family sector has historically performed well during periods of recession due to the short-term nature of our leases,” Waters said.

Minto Apartment REIT focuses on five strategies:

• increase ROI by maximizing revenue, optimizing occupancy, creating value from suite repositioning and minimizing operating expenses;
• strategically allocate capital, which may include recycling opportunities, accretive investments and deleveraging;
• execution of its existing densification and development pipeline to further enhance its portfolio;
• opportunities for acquisition or development by third parties, which will depend on the market;
• and prudent balance sheet and liquidity management.

Debt, Liquidity, Share Prices and Distributions

The trust had $1.08 billion in outstanding debt and total cash of $145.1 million at the end of the third quarter.

Shares of Minto Apartment REIT closed at $14.50 on Nov. 14, when it had a market capitalization of $578.37 million. Its 52-week highs and lows were $23.41 and $12.41, respectively.

“Regardless of short-term financial market volatility, key elements of our strategy have not changed,” Waters said.

“We are confident that by sticking to it, we will deliver strong returns to unitholders, as the fundamentals of the apartment sector remain strong.”

Minto Apartment REIT has increased its distributions in each of the four years since its inception.

“This is another measured increase that highlights our positive financial performance and our confidence in our growth strategy and business outlook,” Waters said.

“It is important to note that while steadily increasing distributions is a priority for the REIT, we are also committed to maintaining a strong balance sheet and a conservative AFFO payout ratio. »

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