Minto Apartment Real Estate Investment Trust (MIUN) Earnings Call Transcript & Summary

Okay. Thank you, John. I will now ask Paul Baron to move and Edward Fu to second a formal motion that a nonbinding advisory basis and not to diminish the role and responsibilities of the Board of Trustees, the unitholders accept the REIT's approach to executive compensation disclosed in the REIT's management information circular dated April 7, 2021 under the heading, Statement of Executive Compensation.

Mr. Chair, I so move.

Mr. Chair, I second the motion.

Thank you both. We will now vote on the motion. If you have not already done so, I will ask registered unitholders and duly appointed proxy holders to cast their votes through the online portal. [Voting]

Thank you for casting your votes. The scrutineers will tabulate the votes cast. The fifth item of business is to affirm, ratify and approve the REIT's amended Omnibus Equity Incentive Plan. A full description of the amendments to the REIT's Omnibus Equity Incentive Plan and the reasons the REIT believes it is in the best interest to seek such amendment is set out in the REIT's management information circular. John, are there any questions or comments submitted in connection with this item?

No, Roger. We have not received any questions related to this item.

Thank you, John. I will now ask Paul Baron to move and Edward Fu to second a formal motion that a resolution be passed in the form set out on Page 18 of the management information circular and also shown on your computer screen, authorizing the replacement of the REIT's current Omnibus Equity Incentive Plan with the amended and restated Omnibus Equity Incentive Plan attached as Schedule A to the management information circular.

Mr. Chair, I so move.

Mr. Chair, I second the motion.

Thank you both. We will now vote on the motion. If you've not already done so, I will ask registered unitholders and duly appointed proxy holders to cast their vote to the online portal. [Voting]

Thank you for casting your votes. The scrutineer will now tabulate the votes cast. Ladies and gentlemen, this brings us to the end of voting on the items of business before this meeting. And I, therefore, declare the polls closed. Thank you for casting your votes. I'm pleased to report that on the election of trustees, the preliminary voting results show that each trustee nominee received votes in favor from a majority of votes cast. Accordingly, I declare the proposed trustee nominees have been duly elected as trustees of Minto Apartment REIT to hold office until the next Annual Meeting of Unitholders or until they resign or their successors are duly elected or appointed. On the appointment of auditors, the preliminary voting results show that a majority of the votes cast were in favor of the reappointment of KPMG LLP as auditors of the REIT. I declare that KPMG LLP are reappointed auditors of Minto Apartment REIT and that the trustees are authorized to fix the auditor's remuneration. On the nonbinding advisory say-on-pay resolution accepting the REIT's approach to executive compensation, more than a majority of the votes cast were voted in favor of the resolution. I declare this motion to be passed. On the affirmation, ratification and approval of the REIT's amended Omnibus Equity Incentive Plan, more than a majority of the votes cast were voted in favor of the resolution. I declare this motion to be passed. The final voting results will be available after the meeting and posted to the REIT's SEDAR profile at www.sedar.com. If there is no further business, I will now ask Paul Baron to move and Edward Fu to second a formal motion to terminate the meeting.

Mr. Chair, I so move.

Mr. Chair, I second the motion.

Thank you both. I declare the motion carried and the meeting terminated. Now that the formal part of the meeting has been concluded, I'd like to make -- I'd like to welcome CEO, Michael Waters, to make a brief presentation on behalf of management. Michael?

Thank you, Roger, and good morning, everyone. I'm pleased that you've all taken the time to join us. Before we begin, I want to remind listeners that certain statements about future events made in this presentation are forward-looking in nature. As Roger noted earlier, any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. Please refer to the cautionary statements on forward-looking information in the REIT's most recent MD&A and annual information form for more information. Also, please note that I will reference certain non-IFRS financial measures. Although management believes these measures provide useful supplemental information about the REIT's financial performance, they're not recognized measures and do not have standardized meanings under IFRS. Please see the REIT's MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures. As we know all too well, 2020 was a year of unpredictable and unprecedented challenges for everyone. Accordingly, first and foremost, I'm pleased to report that Minto Apartment REIT demonstrated commitment and dedication in providing essential services that maximize the safety of our residents. We also took all necessary steps to provide a safe work environment for the Minto team, which enabled them to continue to advance our business objectives. The resilience and quality of our business was on display during 2020. We generated a 2.2% increase in adjusted funds from operations per unit despite the fact that the COVID-19 pandemic was over most of the year. Our Board of Trustees authorized an increase in our annualized cash distribution of 3.4% in recognition of the business' strong and growing cash flow potential. Our payout ratio remained conservative at 60.3% of adjusted funds from operations. During the year, we completed the repositioning of 239 suites, thereby improving the quality of our communities, reducing future repair costs and driving strong growth potential in rental revenue. We advanced an investment loan for the development of Phase 1 of Lonsdale Square in the Greater Vancouver area, and thereby fulfilled the REIT's strategic mandate of establishing a presence in all 6 of Canada's major urban markets. Lonsdale Square is a large master-planned community, of which Phase 1 is expected to comprise 113 rental suites over 6 stories and approximately 7,800 square feet of retail at grade. Upon stabilization of Phase I, which is expected in 2023, we will have the exclusive option to purchase it at a 5% discount to its then appraised fair market value. During 2020, the REIT's net asset value increased by 8.3% to $22.26 per unit. The increase was attributable both to growth in net operating income and cap rate compression. The next slide highlights the REIT's growth in some key financial metrics since our initial public offering in June 2018. Adjusted funds from operations per unit has increased from $0.36 per unit in the partial 2018 fiscal year, representing our first 2 quarters as a public company, to more than $0.74 per unit in 2020. Distributions increased during both years since our initial public offering and now stand at $0.455 per unit on an annualized basis. And as I highlighted a few moments ago, our net asset value increased to $22.26 per unit in 2020, which is 26.9% higher than at year-end 2018. We are committed to creating value for unitholders through growth in net asset value and steady increases in sustainable distribution. The lower table on this slide highlights our success in expanding the REIT's property portfolio while simultaneously improving our balance sheet. Since year-end 2018, our assets have increased 82.5% to $2.2 billion, while our debt-to-gross book value ratio has declined from 45% to 38.6%. We are committed to maintaining prudent leverage while growing revenue, earnings, assets and distributions. The current economic crisis is highlighting the importance of strong liquidity and a solid balance sheet, and we have both. Our total liquidity at year-end was $170.7 million, and at the end of March 2021 was $158.9 million. This slide highlights the significant organic growth we generated in 2020 by realizing on rent increases that are embedded in our portfolio. We signed 1,501 new leases during the year following suite turnover. The average rent on these suites increased by 8.1%, from $1,513 a month to $1,636 a month. As a result, the REIT generated an annualized incremental revenue gain of approximately $1.9 million. You can see on the chart that our rent increases in Toronto and Ottawa markets were exceptional and Montréal was very solid. Alberta's rental market was down in 2020. But I would note that conditions have improved, and we generated a positive gain on turn in Alberta in Q1 2021. Turning to the next slide. I would now talk about repositioning. Under this program, we renovate suites and common areas to drive rent growth. As I noted earlier, we repositioned 239 suites during 2020. The average annual return on investment generated was 9.3%. The REIT's repositioning program presents the best risk-return profile of all investment opportunities, generating growth in net asset value at the expense of modest near-term earnings dilution. We target an average simple return on investment of 8% to 15%, depending on the suite type. Repositioning programs are flexible with relatively small, discrete capital commitments and short project duration and are easily accelerated or slowed as market conditions dictate. The high volume of repositioning and progress generates efficiency through volume purchasing, repeatable design concepts and lessons learned from other projects. At year-end 2020, we had 2,323 suites remaining to reposition or 1,600 suites at our proportionate share at 9 properties. Another important element of our growth strategy is intensification development. We currently have interests in 6 development projects at various stages of the planning process. In total, these projects are expected to add 1,572 new residential suites to our portfolio. The REIT's interest in Fifth + Bank, Phase 1 of Lonsdale Square and Beechwood are through investment loans, which include options to purchase these properties upon stabilization at a 5% discount to the then appraised value. The REIT has a 40% co-ownership interest in High Park Village and a 50% co-ownership interest in Leslie York Mills. The REIT owns 100% of Richgrove. Fifth & Bank is a development project in Ottawa's attractive Glebe neighborhood. A former commercial building is being replaced with a mixed-use, multi-residential 163-suite rental property. And as I highlighted earlier, Phase 1 of the Lonsdale Square development in North Vancouver is expected to add another 113 rental suites. We're also seeking final approvals for intensification projects at the Richgrove and Leslie York Mills properties in Toronto, which together will comprise 417 new suites. Rezoning is in process for a new 229-suite development on Beechwood Avenue in Ottawa -- in Ottawa's attractive New Edinburgh neighborhood, which we announced subsequent to year-end and for a 650-suite intensification project at High Park Village in Toronto. The development opportunities highlight the benefits of the REIT's strategic alliance with the Minto Group. This slide illustrates the geographic diversification we have achieved as a result of our strategic acquisitions and investment loans for development, reducing our overall portfolio risk. As I highlighted earlier, we now have investment in all of Canada's 6 major rental markets. At the time of our initial public offering, Ottawa properties accounted for more than 70% of total suites. That figure declined to 42% at year-end 2020, with the strong Toronto and Montréal markets representing an aggregate 52%. At year-end, our portfolio comprised 29 multi-residential properties, with 7,245 suites, which includes 2,163 suites that we co-own with institutional partners and 3 investment loans with purchase options for a further 505 suites. The average monthly rent for these properties was $1,623 a month, and our occupancy rate was 95.6%. I'd like to conclude by briefly discussing our business outlook. First, while COVID case counts are down and vaccines are being rolled out across the country in increasing volume, the pandemic is still paramount in our near-term planning. We continue to prioritize the health and safety of residents, employees and business partners by ensuring that we maintain the adjusted processes and procedures that have successfully characterized our pandemic response. This includes adapting our leasing and marketing strategies to capture demand in these challenging market conditions, managing the REIT's liquidity to continue to meet our financial obligations and preparing plans to safely return to our workplaces as restrictions are lifted. Coming out of the pandemic, the preliminary economic metrics point to a strong recovery. The benefits of urban living, walking to work, restaurants, and entertainment, transit have all been temporarily on hold due to the COVID restrictions, but they remain highly desirable as the pace of vaccinations gathers momentum and COVID restrictions begin to loosen or lift, we expect stronger demand in our core urban rental markets in the second half of 2021, with occupancy and average monthly rent expected to increase. Our growth strategy is unchanged. We will maximize organic growth by capitalizing on gain-to-lease opportunities and through our suite repositioning program. And we will continue to generate external growth through our strategic acquisition program. This includes capitalizing on the REIT's relationship with the Minto Group to source growth through the intensification of existing sites or by accessing their pipeline of assets and development opportunities. We remain highly confident in our ability to consistently create value for unitholders through growth in net asset value and cash distributions. We're now pleased to answer any questions that you may have with respect to the REIT, its financial statements and its operations during the year. John, are there any questions?

No, Michael. No questions have been submitted.

Thank you. If there are no questions, I'd like to thank everyone for attending this meeting and for your support of the REIT. We look forward to seeing you again next year.