Mr. Jonathan Li reports

MINTO APARTMENT REIT REPORTS 2023 FIRST QUARTER FINANCIAL RESULTS

Minto Apartment Real Estate Investment Trust has released its financial results for the first quarter ended March 31, 2023 (Q1 2023). The condensed consolidated interim financial statements and management's discussion and analysis (MD&A) for Q1 2023 are available on the REIT's website and on SEDAR.

"The REIT had a very strong start to the year, operationally, as our best-in-class urban portfolio continues to benefit from robust industry fundamentals," said Jonathan Li, president and chief executive officer of the REIT. "The first quarter is seasonally a slower quarter, however, the REIT's net operating income (NOI) performance in Q1 2023 thrived. Our gain-on-lease results were strong and average occupancy continued to improve, resulting in year-over-year double-digit growth in the REIT's same-property portfolio revenue and NOI. Given the significant affordability gap between renting and owning a home, insufficient supply of new housing, and significant immigration-driven population growth, long-term sector fundamentals remain constructive for our business."

"At the same time, like many Canadians, our business is faced with the challenges resulting from the historic rapid rise of interest rates and, to that end, we are making progress on transitioning our balance sheet to be best in class. Subsequent to quarter-end, we have replaced the variable rate mortgage associated with Niagara West, which as at March 31, 2023, had an interest rate of 7.70 per cent, with a new 10-year CMHC-insured 3.87 per cent fixed rate mortgage. Additionally, we submitted refinancing applications to CMHC on $136.9-million of maturing mortgages, which we anticipate will result in incremental proceeds between $60-million and $70-million that we will use to repay a portion of our revolving credit facility, further reducing our future variable rate interest expense. Lastly, we expect to imminently replace the variable rate mortgage associated with The International in Calgary, which as at March 31, 2023, had an interest rate of 7.44 per cent, with a new 10-year CMHC-insured fixed rate mortgage with an expected interest rate of approximately 4 per cent. We expect these variable rate debt repayment initiatives to bring immediate upside to FFO and AFFO per unit," added Mr. Li. "We will continue to evaluate other initiatives to maintain or reduce the REIT's overall leverage and further reduce its variable rate interest exposure over time."

Q1 2023 highlights:

• Average monthly rent was $1,769, an increase of 6.9 per cent compared with the first quarter ended March 31, 2022 (Q1 2022). Average monthly rent for the same-property portfolio was $1,755, an increase of 5.7 per cent compared with Q1 2022.
• Average occupancy of unfurnished suites increased to 97.2 per cent, compared with 94.2 per cent in Q1 2022 and 97.1 per cent in the fourth quarter of 2022 (Q4 2022).
• The REIT executed 343 new leases, achieving an average rental rate that was 16.9 per cent higher than the expiring rents, matching 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 15.3 per cent from 13.6 per cent at the end of Q4 2022.
• Revenue for the same-property portfolio was $35.7-million, an increase of 10.5 per cent compared with Q1 2022; total revenue was $38.4-million, an increase of 18.1 per cent compared with Q1 2022.
• Net operating income (NOI) for the same-property portfolio was $21.1-million, an increase of 13.3 per cent compared with Q1 2022; NOI was $22.7-million, an increase of 21.0 per cent compared with Q1 2022.
• NOI margin for the same-property portfolio increased to 59.2 per cent, compared with 57.7 per cent in Q1 2022; NOI margin increased to 59.2 per cent, compared with 57.8 per cent in Q1 2022.
• Net loss and comprehensive loss totalled $24.2-million, compared with net income and comprehensive income of $34.6-million for Q1 2022.
• Funds from operations (FFO) were $11.6-million or 17.72 cents per unit, compared with $12.0-million or 19.06 cents per unit in Q1 2022.
• Adjusted funds from operations (AFFO) were $9.9-million or 15.13 cents per unit, compared with $10.3-million or 16.47 cents per unit in Q1 2022.
• Distributions per unit were 12.25 cents, an increase of 3.2 per cent compared with Q1 2022 and representing an AFFO payout ratio of 81.0 per cent.
• The REIT repositioned 32 suites across its portfolio in Q1 2023, generating an average annual unlevered return of 10.3 per cent.
• Effective Jan. 9, 2023, Edward Fu succeeded Julie Morin as chief financial officer of the REIT.
• The REIT was added to the S&P/TSX Canadian Dividends Aristocrats Index effective Feb. 1, 2023, due to its consistent distribution increases.
• On March 7, 2023, the REIT completed the disposition of Hi-Level Place in Edmonton for a sale price of $9.9-million, generating net proceeds of $2.9-million.
• On March 23, 2023, the REIT and Minto Properties Inc. (MPI) amended the convertible development loan agreement related to Fifth + Bank in Ottawa to extend the REIT's exclusive option to purchase the property to Dec. 31, 2023, and to extend the maturity date of the convertible development loan until Jan. 31, 2024. The coupon payable under the loan was also amended and effective July 1, 2023, it will be equal to the all-in interest rate of the REIT's credit facility, subject to a maximum interest rate of 7 per cent per annum and minimum interest rate of 5 per cent per annum.
• During March, 2023, the REIT acquired rate lock commitments for the upward refinancing of five maturing mortgages with a principal of $136.9-million and expected net proceeds between $60-million and $70-million, which the REIT intends to use to repay a portion of its revolving credit facility. The new mortgages will have fixed interest rates between 3.87 per cent and 3.95 per cent.

Subsequent to quarter-end:

• Mr. Li assumed the role of president and CEO effective April 3, 2023, an important step in the REIT's internalization process.
• On April 27, 2023, the REIT secured a $61.2-million CMHC-insured mortgage for its Niagara West property at an annual fixed interest rate of 3.87 per cent with a 10-year term. The net proceeds were used to repay the existing $46.2-million variable rate mortgage on the property that at March 31, 2023, had an interest rate of 7.70 per cent and a portion of the credit facility.

Q1 2023 operating results

Revenue in Q1 2023 totalled $38.4-million, an increase of 18.1 per cent from $32.5-million in Q1 2022. The increased revenue in Q1 2023 reflected improved occupancy, higher average monthly rents, reduced amortization of promotions and the acquisitions of two properties completed subsequent to Q1 2022 (Niagara West and The International), partially offset by the disposition of Hi-Level Place. Same-property portfolio revenue was $35.7-million, an increase of 10.5 per cent from Q1 2022, reflecting the improved occupancy and higher average monthly rent, as well as reduced amortization of promotions.

Average monthly rent at the end of Q1 2023 was $1,769, an increase of 6.9 per cent compared with $1,655 at the end of Q1 2022. Average monthly rent for the same-property portfolio was $1,755 at the end of Q1 2023, an increase of 5.7 per cent compared with the end of Q1 2022.

Average occupancy was 97.2 per cent in Q1 2023, compared with 94.2 per cent in Q1 2022 and 97.1 per cent in Q4 2022.

The increases in average monthly rent and occupancy reflected the continued strengthening of urban rental market conditions in the REIT's major markets.

Operating expenses were 14.0 per cent higher (6.7 per cent higher for the same-property portfolio) in Q1 2023 compared with Q1 2022, reflecting higher gas rates, salaries, and repair and maintenance costs, as well as acquisitions completed subsequent to Q1 2022. While inflation continued to increase the cost of utilities and property operating expenses, it has moderated from its peak in 2022. Management has in-place strategies to contain controllable operating expenses and continues to evaluate opportunities for cost reductions and efficiencies.

NOI for Q1 2023 totalled $22.7-million, representing 59.2 per cent of revenue, an increase of 21.0 per cent compared with $18.8-million or 57.8 per cent of revenue in Q1 2022. Same-property portfolio NOI for Q1 2023 was $21.1-million, representing 59.2 per cent of revenue, an increase of 13.3 per cent compared with $18.7-million or 57.7 per cent of revenue in Q1 2022. The increases in NOI and same-property portfolio NOI in Q1 2023 reflected higher revenue, partially offset by higher operating expenses as noted above.

FFO in Q1 2023 was $11.6-million or 17.72 cents per unit, compared with $12.0-million or 19.06 cents per unit in Q1 2022. AFFO in Q1 2023 was $9.9-million or 15.13 cents per unit compared with $10.3-million or 16.47 cents per unit in Q1 2022. The declines in Q1 2023 were primarily attributable to the increase in finance costs due to high interest rates on variable rate mortgages and the REIT's credit facility, as well as increased draws on the credit facility, partially offset by higher NOI. AFFO and AFFO per unit were also impacted by an increase in the maintenance capital expenditure reserve from the addition of the properties acquired subsequent to Q1 2022.

The REIT reported a net loss and comprehensive loss of $24.2-million in Q1 2023, compared with net income and comprehensive income of $34.6-million in Q1 2022. The variance was primarily attributable to non-cash, fair value losses on investment properties and Class B LP (limited partnership) units of $13.5-million and $18.3-million, respectively, in Q1 2023, compared with non-cash gains of $14.4-million and $9.6-million, respectively, in Q1 2022. The fair value loss on investment properties in Q1 2023 reflected a slight expansion of capitalization rates for suburban Ottawa assets, partially offset by stable growth in forecast NOI for the portfolio at large. The fair value loss in Class B LP units reflected the increase in the REIT's unit price during Q1 2023.

The REIT paid cash distributions of 12.25 cents per unit for Q1 2023, an increase of 3.2 per cent compared with Q1 2022 and representing an AFFO payout ratio of 81.0 per cent. Cash distributions of 11.87 cents per unit were paid in Q1 2022, representing an AFFO payout ratio of 72.1 per cent.

Gain-on-lease, gain-to-lease potential and repositioning

The REIT signed 343 new leases in Q1 2023, realizing an average gain-on-lease of 16.9 per cent, which matched the highest quarterly gain in the REIT's history. This resulted in an annualized incremental revenue gain of approximately $1.0-million. By comparison, the REIT realized gains on new leases of 10.8 per cent in Q1 2022 and 16.6 per cent in Q4 2022. The REIT realized significant double-digit gain on lease in all markets during Q1 2023. The Canadian urban rental market maintained its strong performance during the quarter, supported by increased immigration, a large affordability gap between rentals and home ownership, increased acceptance of renting versus owning and, for the REIT's urban portfolio, a broad return to downtown living. Suite turnover was lower compared with recent quarters due to the seasonal slowdown typical for Q1 and very tight rental market conditions, resulting in more tenants choosing to stay in place.

Management estimates that the REIT held embedded gain-to-lease potential in its unfurnished suite portfolio of 15.3 per cent as at March 31, 2023, representing future annualized embedded potential revenue of approximately $20.7-million, the largest such dollar amount in the REIT's history. That compares with embedded gain-to-lease potential of 10.7 per cent and an estimated annualized revenue growth opportunity of $12.5-million as at March 31, 2022, and 13.6 per cent or $18.1-million as at Dec. 31, 2022. The embedded gain-to-lease potential is increasing as Canadian urban market rents continue to strengthen.

Management believes that the strength in the Canadian rental market will be sustained and that suite turnover will remain slow in the months ahead as existing tenants will be more likely to stay in place since affordable housing alternatives will be less available. However, management expects that the REIT will be able to realize a significant portion of the gain-to-lease potential over the next four to six years.

The REIT repositioned a total of 32 suites across its portfolio in Q1 2023. The annualized revenue gains realized on the repositioned suites generated an average annual unlevered return on investment of 10.3 per cent. The REIT has a total of 1,951 suites remaining to be repositioned under its current program. Due to the anticipated lower suite turnover in the Canadian rental market as well as low vacancy rates, management currently expects to reposition 80 to 120 suites in 2023, a reduction from 259 in 2022.

Balance sheet and debt refinancing initiatives

As of March 31, 2023, the REIT had total debt outstanding of $1.13-billion, with a weighted average interest rate on fixed rate debt of 3.07 per cent and a weighted average term to maturity on fixed rate debt of 3.98 years. Included in the REIT's total debt was also variable rate debt (comprising the REIT's credit facility and variable rate mortgages), with $289.8-million outstanding and a weighted average interest rate of 7.01 per cent as of March 31, 2023. Subsequent to Q1 2023, the REIT refinanced the variable rate mortgage associated with Niagara West with a CMHC-insured mortgage at a fixed interest rate of 3.87 per cent and will imminently refinance the $62.2-million 7.44 per cent variable rate mortgage secured by The International with a 10-year CMHC-insured fixed rate mortgage with an anticipated interest rate of approximately 4 per cent. These refinancings will reduce the REIT's borrowing costs and limit the REIT's variable interest rate exposure to only the revolving credit facility. The REIT intends to use the estimated proceeds of between $60-million and $70-million from the upward refinancings of five maturing mortgages with a principal of $136.9-million to pay down a portion of its credit facility and further reduce its variable interest rate exposure.

The debt-to-gross book value (GBV) ratio as at March 31, 2023, was 41.2 per cent. The REIT's net asset value (NAV) per unit as at March 31, 2023, was $23.83, a slight decline from $24 as at Dec. 31, 2022, primarily reflecting the fair value loss on investment properties of $13.5-million in Q1 2023 as noted above.

The REIT continues to maintain a strong financial position. Total liquidity was approximately $91.8-million as at March 31, 2023, with a liquidity ratio (total liquidity/total debt) of 8.1 per cent.

Conference call

Management will host a conference call for analysts and investors on Wednesday, May 10, 2023, at 10 a.m. ET. To join the conference call without operator assistance, participants can register and enter their phone number on-line to receive an instant automated callback. 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.

Minto Apartment REIT Q1 2023 earnings webcast

A replay of the call will be available until Wednesday, May 17, 2023. To access the replay, dial 416-764-8677 or 888-390-0541 (passcode 970664 followed by the pound key). A transcript of the call will be archived on the REIT's website.

About Minto Apartment Real Estate Investment Trust

Minto Apartment 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 multiresidential properties located in urban markets in Canada. The REIT owns a portfolio of high-quality income-producing multiresidential rental properties located in Toronto, Montreal, Ottawa, Calgary and Edmonton.

We seek Safe Harbor.