- Average Monthly Rent Growth: 6.3% increase for the same property portfolio compared to Q2 last year.
- Occupancy Increase: 20 basis points increase in occupancy.
- Same-Property Revenue Growth: 4.8% total growth, with 6.8% growth in the unfurnished suite portfolio.
- Normalized SPNOI Growth: 7.5% increase year over year.
- Normalized SPNOI Margin: Increased by 160 basis points.
- Normalized FFO per Unit: 15.4% increase.
- Normalized AFFO per Unit: 18.7% increase.
- Debt to GBV: 41.8%.
- Debt to Adjusted EBITDA: Decreased to 10.9 times.
- Same-Property Portfolio Revenue: $38.9 million, a 4.8% increase from Q2 last year.
- Average Monthly Rent: $1,939 at quarter end.
- Same-Property Normalized NOI: $24.9 million, a 7.5% increase year over year.
- Same-Property Normalized NOI Margin: Increased to 64%.
- Average Occupancy: 96.9%.
- Normalized AFFO Payout Ratio: 57.2%, a reduction of 870 basis points from Q2 2023.
- New Leases Signed: 420 new leases in Q2, generating an 11% gain on lease.
- Commercial Revenue Decrease: 27.4% year-over-year decrease.
- Furnished Suites Revenue Decline: 12.8% decrease compared to Q2 last year.
- Utility Costs Decline: 7.5% decrease in utility costs.
- Suite Repositioning ROI: 9.7% ROI for 13 suites repositioned in Q2.
- Weighted Average Term to Maturity: 5.5 years with a weighted average effective interest rate of 3.43%.
- Total Liquidity: Approximately $164 million as of June 30, 2024.
Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Minto Apartment REIT (MIAPF, Financial) achieved a 6.3% growth in average monthly rents for the same property portfolio compared to Q2 last year.
- Normalized FFO per unit increased by 15.4%, and normalized AFFO per unit increased by 18.7%, indicating strong cash flow growth.
- Debt to GBV was reduced to 41.8%, and debt to adjusted EBITDA improved to 10.9 times, reflecting strong financial performance.
- The REIT successfully signed 420 new leases in Q2, generating an 11% gain on lease, with double-digit increases in Ottawa and Calgary.
- Utility costs in the same-property portfolio declined by 7.5%, primarily due to decreases in natural gas and electricity rates, contributing to cost savings.
Negative Points
- Revenue from the furnished suite portfolio declined by 12.8% compared to Q2 last year, primarily due to lower occupancy at Minto Yorkville.
- Commercial portfolio revenue decreased by 27.4% year-over-year, reflecting retail vacancy at Minto Yorkville.
- Toronto experienced high vacancy for one-bedroom suites, resulting in lower closing occupancy of 95.1%, necessitating targeted promotions and marketing campaigns.
- Normalized operating expenses for the same property portfolio increased slightly due to higher salaries and wages.
- The REIT's unit price remains below NAV, limiting the ability to issue equity to fund acquisitions and impacting external growth strategies.
Q & A Highlights
Q: Focusing on the Toronto market, it appears after several years that rent growth is maybe stopped or it's peaked. Can you talk a little bit about what you're seeing and what your expectations are for this market in particular as far as the rent growth you're able to achieve? And is this impacting at all the turnover that has been declining for some time?
A: Mark, it's Paul Baron speaking. So consistent to what we've been communicating for the last few quarters, market rents in Toronto, Aperio plateaued. Most notably, we're seeing that in the one-bedroom suite. There's been that large condo deliveries through 2024. Those newly completed condo projects are having an outsized impact on the rental market. Buildings registered since 2020, actually represented more than half of all rental transactions in Q2. That's a 65% year-over-year increase in that leasing activity. The continued downward pressure on rents as condo owners look to fill suites quickly to recover those increased mortgage payments that they're all on the hook for. I would say, that said, we still see a significant gain to lease potential in that market at 16.9%. So we do anticipate some decent growth going forward.
Q: The unit price doesn't seem to be showing any traction as far as getting back closer to NAV at least in the near term. And clearly, you're not looking to issue equity to fund acquisitions. To what extent has your strategy shift or your thoughts as far as external growth, whether it's regards to acquiring properties or from the development loans, would you allow leverage to maybe rise somewhat, not necessarily with variable rate debt, but to take advantage of the opportunity to acquire a quality asset if it was accretive? Or is maintaining or improving the balance sheet further paramount and you just won't grow externally?
A: Mark, it's John here. I think you've touched on a couple of things and maybe I'll address each of them or at least provide some thoughts on each of them. Our share price, like many REITs, has been frustrating. I don't think there's a management team out there that thinks that their share price is where it should be. But a couple of interesting facts that I think are encouraging. I think transaction activity behind the scenes in the private investment market seems to be picking up. I think that's going to be positive for us in a few ways. One, it will show that institutional money is coming back into the sector in a meaningful way, I think, which is positive. Two, we're just getting more inbounds for some of our assets at more attractive pricing. Three, based on what we know, the purchase prices of those transactions will highlight the discount that we trade at is not warranted, right? Like if we see a large sample size of individual transactions where institutional parties or buying assets for cap rates well below our implied trading cap rate and closer to our book cap rate. It will highlight that it doesn't make sense for our share price to be trading at a 25% discount to NAV. You kind of add some of the capital markets factors at play which we're hearing that many generalist investors are becoming like orders in the space. We're hearing retail investors are much more interested as GIC alternatives are becoming less and less attractive as interest rates come down and, you kind of add all that together and we're hopeful that, it will really put some wind in the back of our sales because we have such a high-quality portfolio. And if we see a plethora of transactions that support valuations that are significantly higher than where we're trading, I think that's good for us. I think as it relates to your second question around, I'll just break it down to sort of capital allocation decisions and leverage. Look, I think we've been pretty successful in reducing our variable rate debt exposure. I think it's been accretive. We have a number of refis that once complete net proceeds will be used to continue to reduce our variable rate debt. So that will be, I think, positive and it will be quite low. So as long as there's variable rate debt, I think that's probably the highest on our priority list to pay down as it's the most accretive and should we be in a position where we have excess capital, that's when it becomes more interesting, and we'll consider share buybacks, and we'll consider potential acquisitions. I think we're pretty comfortable with leverage kind of below that 45% debt to gross book value range. I think we're pretty significantly below that. And we're cognizant of our cash flow going forward. So a long way of saying kind of I think things are fluid. I think many options are on the table in terms of growth, I think external growth is probably less likely, sorry, external third-party growth is less likely than potentially buying one of the CDL opportunities. But I think we've demonstrated that we've been quite disciplined, and I think we're going to maintain that discipline. And we have some time to figure it out, and all options remain on the table. And I think we've been pretty successful at raising equity internally by asset sales and if it makes sense to do more, we'd consider it.
Q: I don't think there's anything left after that explanation, John numbers, but maybe I'll try. I mean, I guess with private market activity perking up here, how likely should we think about potential dispositions of assets that you own within the next 6 to 12 months?
A: I mean I think as I said earlier, further asset sales will likely be tied to other transactions if we consider them, right? I think in and of themselves, we got ahead of, I think, the asset sales game, and we were quite successful in executing them and they're kind of in the rearview mirror. So there's no real catalyst for us to just sell assets for the sake of selling more assets. I think our variable rate debt is in a good spot or it will be after some refinancing. And I think we would consider other asset sales if we got pricing that made sense. And if it made sense for us to apply some of those proceeds to a potential acquisition to keep our leverage in a good spot, I think we would consider it. So all options on the table, nothing decided yet, but we are trying to extend option value. We're trying to expand option value in terms of the number of structures that we can apply to potential growth. But again, we're maintaining discipline that we're going to stay disciplined and we'll do what's in the best interest of shareholders in the long term in our judgment.
Q: On the Toronto vacancy, is that spread out fairly evenly across the portfolio? Or is it mostly at one or two properties?
A: Mostly at one or two properties. I should say, breaking that down a little bit further, Jonathan. It's also focused on those one-bedroom suites that are feeling that additional pressure from the condo competition, as we've mentioned before.
Q: And can you maybe give some examples of you talked about tactical promotions and tailored renewals, some of the stuff that you're doing?
A: Yes, for sure. So promotion activity really getting created by property
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
