Canada’s Leading Urban Residential REIT
2019 Annual Report TSX | MI.UN
Minto Apartment REIT Profile
Minto Apartment REIT (or the “REIT”) is a growth-oriented real estate investment trust that owns and operates high quality
multi-residential rental properties located in primary urban markets in Canada.
Minto Apartment REIT’s objectives are to:
• Provide Unitholders with the opportunity to invest in high quality income producing multi-residential rental properties
strategically located across urban centres in Canada
• Enhance the value of the REIT’s assets and maximize long-term Unitholder value through value enhancing capital
investments and active asset and property management of the REIT’s properties
• Provide Unitholders with predictable and sustainable cash distributions
• Expand the REIT’s asset base across Canadian urban centres through acquisitions, intensification programs and development
Summary Information(1,2)
Investment property geographic breakdown(3)
Suites
2019
2018
7,243
4,350
Average Rent Per Suite
$1,579
$1,402
Occupancy rate(4)
98.01%
98.76%
17%
Total Assets
$2.1 Billion
$1.2 Billion
Debt-to-Gross Book Value(2)
39.30%
44.95%
4%
7%
Ottawa
Toronto
2019
50%
Montreal
Calgary
Edmonton
Weighted Average Term to Maturity
5.97 Years
5.86 Years
22%
Weighted Average Interest Rate
3.15%
3.18%
$20.56
$17.54
62.5%
61.5%
$0.44
$0.41
2019
2018
NAV per unit (1,2)
2019
2018
NOI Margin % (2,5)
2019
2018
Annualized distributions per unit (6)
(1) All amounts are as at December 31, 2019, and December 31, 2018, respectively.
(2) NOI, Debt-to-Gross Book Value, and Net Asset Value (“NAV”) per unit are non-IFRS financial measures. See, “Non-IFRS Measures” in Management’s Discussion and Analysis in this annual report.
(3) Geographic breakdown is based on rental suites as at December 31, 2019.
(4) Excludes furnished suites and suites taken offline for repositioning.
(5) Performance statistics are for the twelve months ended December 31, 2019, and the 183-day period from July 2, 2018 to December 31, 2018.
(6) Distribution rates in place as at December 31.
Letter to Unitholders
Dear Fellow Unitholders,
During its first full year of operation Minto Apartment REIT (or the “REIT”) executed on its strategic plan and delivered
strong operating and financial results. We are pleased with the growth the REIT experienced in 2019 which came as a
result of a disciplined and focused strategy aimed at geographic diversification, opportunistically taking advantage of
the Minto Properties strategic alliance and generating organic growth through suite repositioning programs.
During 2019, the REIT grew its net asset value per unit by 17.2% through the effective deployment of capital in accretive
suite repositionings and strategic acquisitions. The REIT also captured some of the embedded rent in its portfolio which,
combined with effective cost control, resulting in a 100 basis points improvement in the net operating income margin. As
a result of its strong financial performance, in August, the REIT increased its monthly cash distribution by 7.4%.
In 2019, the REIT was extremely effective acquiring interests in six properties and 2,890 suites. These acquisitions
enhanced both portfolio quality and geographic diversification and increased suite count by 66% over 2018. Two of the
acquisitions, a 40% interest in High Park Village and a 50% interest in Leslie York Mills, in prime urban locations in the
City of Toronto, were made possible by the REIT’s strategic alliance with Minto Properties. Both properties have active
suite repositioning programs and the potential for site intensification with new development. We also made our debut in
Montreal with three acquisitions, which created immediate scale. The REIT purchased a 50% interest in Rockhill and 100%
interests in Haddon Hall and Le 4300. The properties are extremely well-located and also have the potential for suite
repositioning projects. The final acquisition, The Quarters, is a recently constructed project adjacent to the growing
Quarry Business Park in Calgary. It is in close proximity to The Laurier, another REIT property, providing efficiency in
operations.
The REIT also continues to execute on its asset management plans for existing properties. Our asset managers continually
monitor local market demand and competing product offerings to determine an appropriate strategy for each of our
properties. In certain locations there are opportunities to renovate and strategically reposition suites. Improvements to
suites and common areas in these properties generate strong growth in rental revenues and produce excellent financial
returns on invested capital. Including the acquisitions made in 2019, the REIT has repositioning programs underway at
seven properties in the portfolio with 2,110 suites remaining to reposition.
The 2019 performance was achieved against a strong economic backdrop for residential rental properties and the
outlook remains positive going forward. Population growth in Canada, supported by rising immigration, is the highest
among G7 countries. This combined with the continuing trend towards urbanization has created strong demand for
housing in the six major markets that the REIT has targeted for acquisitions (Toronto, Montreal, Ottawa, Calgary,
Edmonton and Vancouver). These centres are the preferred choice of new Canadians and population in these markets
has grown at faster rates than the balance of the country.
The demand for rental housing is attracting investment in new development but the municipal planning process in major
cities is such that new supply cannot be brought to market quickly. Long and uncertain approval timelines mean that it
can take several years for a major project to get approvals before breaking ground, let alone completing construction.
Demand for rental housing is likely to exceed new supply for the foreseeable future. Affordability challenges in the major
metropolitan areas also make renting an increasingly attractive option over home ownership.
The REIT is well positioned to capitalize on these favourable market dynamics in 2020. Capital raising activities in 2019,
in both the debt and equity markets, provide the REIT with substantial capacity for investment in existing properties and
new acquisitions while at the same time maintaining conservative financial metrics.
In executing its business plan the REIT will maintain its commitment to its tenants, its employees and to the environment.
We regularly measure customer satisfaction and employee engagement to ensure that our management policies and
practices are achieving desired results. All of the REIT’s properties supply data to the Canada Green Building Council’s
Disclosure Challenge, an initiative designed to reduce emissions and increase energy efficiency through sharing data
and ongoing benchmarking. We believe that treating all stakeholders with care and respect is not only the right thing to
do, but will also result in improved returns to Unitholders.
The Board of Trustees and management are excited about the opportunities for Minto Apartment REIT in 2020. We
believe we will be able to deliver on accretive growth and value creation. We thank our Unitholders for their confidence
and support and look forward to another great year ahead.
Roger Greenberg
Chairman
Michael Waters
Chief Executive Officer and President
Table of Contents
Management’s Discussion and Analysis
Section I – Overview
Business Overview
Business Strategy and Objectives
Declaration of Trust
Basis of Presentation
Forward-Looking Statements
Use of Estimates
Non-IFRS Measures
Financial and Operating Highlights
Outlook
Section II – Financial Highlights and Performance
Key Performance Indicators
Review of Financial Performance
Summary of Quarterly Results
Summary of Annual Results
Section III – Assessment of Financial Position
Investment Properties
Class B LP Units
Class C LP Units
Secured Debt
Units
Distributions
Section IV – Liquidity and Capital Commitments
Liquidity and Capital Resources
Cash Flows
Reconciliation of Non-IFRS Measures
Section V – Accounting Estimates and Policies, Controls and Procedures and Risk Analysis
Critical Judgements in Applying Accounting Policies
Critical Accounting Estimates and Assumptions
Risks and Uncertainties
Financial Risk Management
Related Party Transactions
Contingencies and Commitments
Adoption of Accounting Standards
Future Changes in Accounting Standards
Disclosure Controls and Internal Controls over Financial Reporting
Section VI – Supplemental Information
Property Portfolio
Consolidated Financial Statements
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Net Income and Comprehensive Income
Consolidated Statements of Changes in Unitholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Unitholder Information
1
1
1
1
1
2
3
3
3
5
10
12
12
13
19
20
21
21
23
23
23
24
24
25
25
27
28
30
30
30
31
35
37
38
39
39
39
41
41
42
42
44
45
46
47
48
77
Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Section I - Overview
Business Overview
Minto Apartment Real Estate Investment Trust (the "REIT") is an unincorporated, open-ended real estate investment trust
established pursuant to a Declaration of Trust dated April 24, 2018, which was amended and restated on June 27, 2018 and further
amended by the First Amendment to the Amended and Restated Declaration of Trust on July 10, 2018. The REIT was formed to
own and operate a portfolio of income-producing multi-residential rental properties located in Canada.
The REIT's operations commenced on July 2, 2018 when the REIT indirectly acquired a portfolio of 22 multi-residential rental
properties (the "Initial Portfolio"), comprising an aggregate of 4,279 suites located in urban centres in Ontario and Alberta.
At December 31, 2019, the REIT's portfolio, referred to herein as the "Total Portfolio", consists of 29 multi-residential rental
properties located in Ontario, Quebec and Alberta, comprising an aggregate of 5,080 suites that are wholly-owned by the REIT,
1,413 suites that are 50% co-owned with institutional partners and 750 suites that are 40% co-owned with an institutional partner.
At December 31, 2019, the "Same Property Portfolio" represents the Initial Portfolio comprising 4,283 suites (including four
additional suites converted from underutilized space) at 22 properties which makes up approximately 64% of the total fair value
of the investment properties. It does not include the Kaleidoscope property in Calgary that was purchased on December 18, 2018
as the 13 days of earnings from this property in 2018 are not material.
The REIT was established under the laws of the Province of Ontario. The principal and registered office of the REIT is 200-180 Kent
Street, Ottawa, Ontario.
Business Strategy and Objectives
The REIT's objectives are to:
•
•
•
•
provide Unitholders an opportunity to invest in high-quality income-producing multi-residential rental properties
strategically located across urban centres in Canada;
enhance the value of the REIT's assets and maximize long-term Unitholder value through value-enhancing capital
investment programs and active asset and property management of the REIT properties;
provide Unitholders with predictable and sustainable distributions; and
expand the REIT's asset base across Canadian urban centres through intensification programs, acquisitions and
developments.
Management believes it can accomplish these objectives given that it operates a high quality portfolio in an attractive asset class
with compelling supply and demand characteristics. Furthermore, the REIT has several strategic avenues for growth and benefits
from its strategic alliance with Minto Properties Inc. ("MPI").
Declaration of Trust
The investment policies of the REIT are outlined in the REIT’s Amended and Restated Declaration of Trust dated June 27, 2018, as
amended by the First Amendment to the Amended and Restated Declaration of Trust dated July 10, 2018 (together, the "DOT").
A copy of these documents is available on SEDAR (www.sedar.com). Some of the principal investment guidelines and operating
policies set out in the DOT are set out below.
Investment Guidelines
(i)
The focus of the REIT is to invest in income-producing real estate located in Canada whose revenue stems primarily from
multi-residential rental assets and assets ancillary thereto;
(ii) No investment will be made that would result in the REIT not qualifying as a “mutual fund trust” as defined in the Income
Tax Act (Canada);
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
1 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
(iii) No single asset shall be acquired if the cost of such acquisition (net of the amount of debt assumed or incurred for the
acquisition) exceeds 20% of the REIT’s “Gross Book Value” (defined as the greater of (1) total assets and (2) the sum of
the historical cost of investment properties, cash and cash equivalents, mortgages receivable and the historical cost of
other assets);
(iv)
Investments in joint ventures are permitted for the purpose of making another otherwise qualifying investment;
(v) The REIT is permitted to invest in raw land (which does not include land under development) up to 10% of Gross Book
Value;
(vi) The REIT is permitted to invest in and originate mortgages, mortgage bonds, mezzanine loans and similar instruments
that are secured by properties that otherwise would be qualifying REIT investments up to 15% of Gross Book Value; and
(vii) The REIT may invest an amount up to 15% of Gross Book Value in investments which do not comply with certain investment
guidelines including paragraphs (i), (v) and (vi), above.
Operating Policies
(i) Overall indebtedness of the REIT (including Class C LP Units) shall not exceed 65% of Gross Book Value (or 70% of Gross
Book Value including convertible debentures);
(ii) The REIT cannot guarantee third party debt, except for entities in which the REIT has an interest or joint ventures in which
the REIT has an interest, subject to certain stipulated permitted exceptions;
(iii) The REIT can engage in new construction or development of real property provided that the aggregate investment in
construction or development does not exceed 10% of Gross Book Value;
(iv) The REIT will maintain property insurance coverage; and
(v) Unless the requirement is waived by the REIT's independent Trustees, the REIT will obtain an appraisal of each real
property that it intends to acquire and an engineering survey with respect to the physical condition of the property. The
REIT must obtain a Phase I environmental site assessment of the property (or be entitled to rely on a Phase I environmental
site assessment that is not more than six months old).
As of March 10, 2020 the REIT was in compliance with its investment guidelines and operating policies.
Basis of Presentation
The following Management's Discussion and Analysis of the REIT's results of operations and financial condition should be read in
conjunction with the REIT's consolidated financial statements and accompanying notes for the year ended December 31, 2019 and
the period from April 24, 2018 (date of formation) to December 31, 2018, prepared in accordance with International Financial
Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
The REIT had no operations from April 24, 2018 (date of formation) to July 1, 2018, therefore the comparative information presented
in this Management's Discussion and Analysis covers the 183-day period from July 2, 2018, when the REIT commenced operations,
to December 31, 2018 and as such, is not comparable to the year ended December 31, 2019. The analysis of the results of operations
will focus on the three-month periods ended December 31, 2019 and 2018. All amounts are stated in thousands of Canadian dollars,
unless otherwise noted.
The REIT's Board of Trustees approved the content of this Management's Discussion and Analysis on March 10, 2020. Disclosure
in this document is current to that date unless otherwise stated. Additional information relating to the REIT can be found on SEDAR
at www.sedar.com and also on the REIT's website at www.mintoapartments.com.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
2 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Forward-Looking Statements
This Management's Discussion and Analysis may contain forward looking statements (within the meaning of applicable Canadian
securities laws) relating to the business of the REIT. Forward looking statements are identified by words such as "believe",
"anticipate", "project", "expect", "intend", "plan", "will", "may", "estimate" and other similar expressions. These statements are
based on the REIT's expectations, estimates, forecasts and projections. They are not guarantees of future performance and involve
risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially
from the results discussed in the forward looking statements, including, but not limited to, the factors discussed under the heading
"Risks and Uncertainties". There can be no assurance that forward looking statements will prove to be accurate as actual outcomes
and results may differ materially from those expressed in these forward looking statements. Readers, therefore, should not place
undue reliance on any such forward looking statements. Further, these forward looking statements are made as of the date of this
Management's Discussion and Analysis and, except as expressly required by applicable law, the REIT assumes no obligation to
publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise.
Use of Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires Management to make judgments,
estimates and assumptions that affect the application of accounting policies and the amounts reported in the consolidated financial
statements and accompanying note disclosures. Although these estimates are based on Management’s knowledge of current
events and actions the REIT may undertake in the future, actual results may differ from the estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
Non-IFRS Measures
This Management's Discussion and Analysis has been prepared in accordance with IFRS. It also contains certain non-IFRS financial
measures including funds from operations ("FFO"), FFO per unit, adjusted funds from operations ("AFFO"), AFFO per unit, AFFO
Payout Ratio, net operating income ("NOI"), debt-to-Gross Book Value ratio, debt-to-earnings before interest, taxes, depreciation
and amortization ("EBITDA") ratio, debt service coverage ratio, net asset value ("NAV") and NAV per unit, 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 performance on a consistent basis. However,
these measures do not have a standardized meaning prescribed by 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.
In February 2019, the Real Property Association of Canada (‘‘REALPAC’’) published a white paper titled ‘‘White Paper on Funds
from Operations & Adjusted Funds from Operations for IFRS’’. The purpose of the white paper is to provide reporting issuers and
investors with greater guidance on the definition of FFO and AFFO and to help promote more consistent disclosure from reporting
issuers. The REIT has reviewed the white paper and has implemented its recommended disclosures in this Management's Discussion
and Analysis, except as noted below.
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 is in accordance with REALPAC’s recommendations, but
may differ from other issuers’ methods and, accordingly, may not be comparable to FFO reported by other issuers. The REIT regards
FFO as a key measure of operating performance.
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 is in accordance with REALPAC’s recommendations, except that it
adjusts for certain non-cash items (such as adjustments for the amortization of mark-to-market adjustments related to debt and
gain on retirement of debt), but may differ from other issuers’ methods and, accordingly, may not be comparable to AFFO reported
by other issuers. The REIT regards AFFO as a key measure of operating performance. The REIT also uses AFFO in assessing its capacity
to make distributions.
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3 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
NOI is defined as revenue from investment properties less property operating costs, property taxes and utilities 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. The REIT regards NOI as an important measure of the income generated from income-producing properties and is
used by Management in evaluating the performance of the REIT’s properties. It is also a key input in determining the value of the
REIT’s properties. NOI margin is defined as NOI divided by revenue.
The following non-IFRS measures are defined as follows:
•
•
•
•
•
•
•
•
"FFO per unit" is calculated as FFO divided by the weighted average number of Units and Class B LP Units outstanding
over the period.
"AFFO per unit" is calculated as AFFO divided by the weighted average number of Units and Class B LP Units outstanding
over the period.
"AFFO Payout Ratio" is the proportion of the total distributions on Units and Class B LP Units to AFFO.
"Debt-to-Gross Book Value Ratio" is calculated by dividing total interest-bearing debt consisting of mortgages, credit
facility and Class C LP Units by total assets and is used as the REIT's primary measure of its leverage.
"Debt-to-EBITDA Ratio" is calculated by dividing interest-bearing debt (net of cash) by EBITDA. EBITDA is calculated as
the trailing twelve-month NOI adjusted for full year of stabilized earnings from recently completed acquisitions, fees and
other income and general and administrative expenses, but excluding fair value adjustments.
"Debt Service Coverage Ratio" is the ratio of NOI to total debt service consisting of interest expense recorded as finance
costs and principal payments on mortgages, credit facility and distributions on Class C LP Units.
"NAV" is calculated as the sum of the value of Unitholders' equity and Class B LP Units as at the balance sheet date.
"NAV per unit " is calculated by dividing NAV by the number of Units and Class B LP Units outstanding as at the balance
sheet date.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
4 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Financial and Operating Highlights
The REIT operates in a favourable economic backdrop where supply and demand characteristics are compelling, population growth,
that is powered in large part by immigration, continues to climb and affordability challenges in major urban centres have made
renting an increasingly attractive option over home ownership. Throughout 2019, the REIT capitalized on these favourable market
fundamentals by successfully executing on its strategy to expand its asset base across Canadian urban centers through six property
acquisitions, strategically repositioning more than 200 suites and realizing $2.9 million of embedded rent as tenancies turned over.
Strong Financial Performance
The REIT delivered strong financial performance with growth in its Same Property Portfolio NOI and NOI margin compared to 2018
and NAV per unit growth in excess of 17% year over year. The REIT was able to achieve these results by executing on its stated
strategy: (i) through organic growth by monetizing the embedded gap to market rent in the portfolio and increasing earnings, (ii)
through value creation by deploying capital to improve suites and capturing incremental revenue potential, and (iii) through external
growth by leveraging its strategic alliance with MPI for two acquisitions and completing four third party acquisitions.
Comparisons to 2018 are difficult as the REIT commenced operations midway through that year. Growth in the Same Property
Portfolio NOI and NOI through acquisitions was partially offset by a 28.3% increase in the weighted average number of Units and
Class B LP Units from the previous year arising from equity issuances completed in 2019.
NAV per unit was $20.56 as at December 31, 2019, 17.2% higher than the $17.54 in 2018, in large part due to strategic acquisitions
and NOI growth in the Same Property Portfolio due to continued investment in suites, common areas and amenities, partially offset
by additional issuances of Units and Class B LP Units to finance the REIT's growth.
Although management prioritizes the growth in AFFO per unit , the REIT is focused on creating long term value for Unitholders by
increasing the total NAV per unit. In some instances, the acquisitions and repositioning programs initiated by the REIT result in
short term dilution of AFFO per unit but are accretive to the REIT from a NAV perspective. The REIT continuously seeks to balance
these two important performance indicators.
External Growth — Acquisitions
The REIT's acquisition strategy focuses on the six core urban Canadian markets, with an emphasis on properties that have a large
gap to market in sitting rents and also repositioning or intensification potential. The REIT successfully completed six acquisitions
during the year, including two as a result of its strategic alliance with MPI, thereby increasing the REIT's presence in Toronto and
Alberta and making a foray into the Montreal market. The acquisitions comprised more than $700 million in investments and 2,890
suites, including 2,163 suites that are co-owned with institutional partners.
On January 7, 2019, the REIT acquired The Quarters, a two-building, 199-suite multi-residential rental property located in Quarry
Park in Calgary for $63,750. The Quarters is in close proximity to another REIT property, The Laurier, which allows the REIT to
generate operating synergies.
On May 1, 2019, the REIT acquired MPI's 50% ownership interest in Leslie York Mills, a three-building, 409-suite multi-residential
rental property in Toronto for a purchase price of $75,050. A major appeal of this property was the repositioning and intensification
opportunities it offers. The REIT has repositioned 49 suites since the acquisition, leaving another 360 suites to be repositioned in
coming years. Additionally, the site was rezoned to permit the development of 192 new rental terrace homes. Conceptual designs
for construction have been developed and site plan approvals are currently in process.
On May 7, 2019, the REIT made its entry into the Montreal market by acquiring a 50% ownership interest in Rockhill, a six-building,
1,004-suite multi-residential rental property for a purchase price of $134,000. Located in close proximity to downtown Montreal,
the property benefits from extensive capital enhancements made by its previous owner to balconies, parking and common areas,
leaving the REIT with suite repositioning and amenity upgrade opportunities. The Leslie York Mills and Rockhill acquisitions were
funded by the issuance of 8,809,000 Units from treasury for net proceeds of $165,172.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
5 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
The Quarters, Calgary
Leslie York Mills, Toronto
Rockhill, Montreal
On August 1, 2019, the REIT again took advantage of its strategic alliance with MPI by acquiring its 40% ownership interest in High
Park Village, a three-building, 750-suite multi-residential rental property in Toronto, for a purchase price of $131,214. The acquisition
was funded by the issuance of 2,806,122 Class B LP Units to MPI for $55,000, the assumption of a $39,480 mortgage and a draw
on the REIT's credit facility. Similar to the Leslie York Mills acquisition, High Park Village provides both repositioning and
intensification potential. Following the acquisition, the REIT continued the repositioning program initiated by MPI in 2016 by
renovating a further 15 suites. At the end of 2019, another 392 suites remain to be renovated, creating a great opportunity to
continue to drive rent growth. The REIT also continues to work its way through the re-zoning process for the potential intensification
of the property.
On November 20, 2019, the REIT further diversified by increasing its presence in Montreal through the acquisitions of Le 4300, a
12-storey, 318-suite multi-residential rental property and Haddon Hall, a ten-building, 210-suite multi-residential rental property,
for a combined purchase price of $281,100. Detailed feasibility studies to exploit the repositioning at both properties is currently
underway.
In order to fund these two Montreal acquisitions, the REIT completed the issuance of 10,706,280 Units from treasury for net
proceeds of $234,184. The REIT also took the opportunity to increase the limit on its credit facility to $200,000, providing additional
capacity for growth.
High Park Village, Toronto
Haddon Hall, Montreal
Le 4300, Montreal
In addition to the Montreal acquisitions, during the fourth quarter the REIT advanced $19,727 to an affiliate of MPI to support its
redevelopment of a commercial property located at 99 Fifth Avenue, Ottawa, Ontario ("Fifth and Bank") into a mixed-use multi-
residential rental property. This 163-suite project is located in the heart of the Glebe, one of Ottawa’s most desirable
neighbourhoods. The REIT has an option to acquire the property on stabilization after its completion at 95% of its then current fair
market value. The loan bears interest at 6% per annum, matures on March 31, 2022 and is subordinate to senior construction
financing.
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6 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Organic Growth — Gain-to-Lease
The REIT realized on substantial organic growth for the three months ended December 31, 2019 through effective leasing activities
and revenue management strategies. As new tenants take occupancy, the REIT is able to move rental rates from older in-place
levels to current market rates. During the period, new leases resulted in annualized revenue growth of approximately $602. A
summary of leasing activities and the gains to be realized from new leases signed for the three months ended December 31, 2019
is set out in the table below:
Geographic Node
New Leases
Signed¹
Average Monthly
Expiring Rent
Average Monthly
New Rent
Percentage
Gain (Loss)-on-Turn
Annualized Gain
(Loss)-on-Turn²
Toronto
Ottawa
Alberta
Montreal
Total/Average
66
140
76
18
300
$2,047
1,350
1,349
1,414
$1,458
$2,373
1,628
1,288
1,677
$1,647
16.0%
20.6%
(4.5)%
18.6%
12.9%
$160
468
(56)
30
$602
¹ New leases signed includes 100% of new leases from co-ownerships and excludes new leases of furnished suites.
² For co-owned properties, reflects the REIT's co-ownership interest only.
The REIT was able to realize, on average, an increase of 12.9% on the 300 new leases it signed in the last quarter of the year.
Although the increase represents a significant uplift over the average monthly expiring rent, the average monthly new rent is lower
than the average monthly new rent realized in Q3 2019 for all regions, with the exception of Toronto, owing to typical seasonality
in leasing demand.
In Alberta, the REIT experienced a slight decline in average monthly new rent as it offered incentives to attract new tenants in order
to mitigate the impact of unfavorable rental market conditions in the off-peak season for leasing. Management believes the
conditions in Alberta are temporary and expects the rental market to improve over the coming quarters resulting in the realization
of the embedded gain-to-lease potential in the Alberta market.
The annualized gains to be realized from new leases signed in the last four quarters are as follows:
Fiscal Quarter
New Leases
Signed¹
Average Monthly
Expiring Rent
Average Monthly
New Rent
Percentage
Gain (Loss)-on-Turn
Annualized Gain
(Loss)-on-Turn²
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Total/Average
247
435
442
300
1,424
$1,420
1,417
1,486
1,458
$1,448
$1,539
1,585
1,737
1,647
$1,637
8.4%
11.5%
16.9%
12.9%
12.9%
$355
822
1,148
602
$2,927
¹ New leases signed includes 100% of new leases from co-ownerships and excludes new leases of furnished suites.
² For co-owned properties, reflects the REIT's co-ownership interest only.
The above table highlights the cyclical nature of the business, with the peak leasing season being the second and third quarters of
a calendar year while there is typically less leasing activity through the winter period.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
7 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
A summary of leasing activities and the gains to be realized from new leases signed for the year ended December 31, 2019 is set
out below:
Geographic Node
New Leases
Signed¹
Average Monthly
Expiring Rent
Average Monthly
New Rent
Percentage
Gain-on-Turn
Annualized Gain-
on-Turn²
Toronto
Ottawa
Alberta
Montreal
236
770
304
114
Total/Average
1,424
$2,084
1,360
1,324
1,353
$1,448
$2,418
1,567
1,359
1,637
$1,637
16.0%
15.3%
2.6%
20.9%
12.9%
$682
1,922
127
196
$2,927
¹ New leases signed includes 100% of new leases from co-ownerships and excludes new leases of furnished suites.
² For co-owned properties, reflects the REIT's co-ownership interest only.
Management continually reviews market conditions and updates the embedded potential gain-to-lease in the portfolio.
Management currently estimates that the portfolio has annualized embedded potential gains-to-lease of approximately $16,181.
The total embedded gain-to-lease has increased by $10,516 since December 2018, of which approximately 47% is related to
acquisitions and approximately 53% is related to increased market rents for the Initial Portfolio.
Market rents strengthened through the year particularly in Ontario which continues to experience strong demand. Given the
combined size of the Ottawa and Toronto portfolio, small increases in market rent make a large contribution to the potential gain-
to-lease.
The ability of the REIT to realize on this growth is dependent on the rate of turnover in its portfolio and the market conditions
remaining strong. Although suite turnover remains steady, the amount of embedded gain-to-lease unlocked is dependent on the
suite type and length of tenancy turning over. Management expects that it will be able to realize a significant portion of the gain-
to-lease potential over a period of three to five years, given current market conditions.
The gain-to-lease potential on existing rents as at December 31, 2019 is as follows:
Geographic Node
Total Suites¹
Average Monthly
In-Place Rent/Suite
Management's
Estimate of Monthly
Market Rent
Percentage
Gain-to-Lease
Annualized
Estimated Gain-to-
Lease²
Toronto
Ottawa
Alberta
Montreal
Total/Average
1,799
2,899
620
1,480
6,798
$1,806
1,439
1,316
1,882
$1,579
$2,075
1,691
1,405
2,131
$1,816
14.9%
17.5%
6.8%
13.3%
15.0%
$3,765
8,761
664
2,991
$16,181
¹ Excludes 257 furnished suites and 140 vacant suites and 48 suites offline for repositioning.
² For co-owned properties, reflects the REIT's co-ownership interest only.
Value Creation — Repositionings
In order to take advantage of market demand for repositioned properties, the REIT’s asset management strategy targets
improvements to suites, building common areas, and amenities. As part of an asset management plan for each building,
Management will renovate various test suites in order to gauge tenants’ demand for different improvements or combination of
improvements. Test suites also assist Management in mitigating capital risk by refining cost estimates and uncovering potential
issues prior to a broader roll out of the program. Once an optimal combination of suite improvements is determined, a repositioning
plan is executed for all of the suites in the building. The rate at which Management can complete the repositioning plan depends
on the rate of suite turnover. The REIT currently has active repositioning programs at: Minto Yorkville, Leslie York Mills and High
Park Village in Toronto; its three Edmonton properties; Castle Hill and Carlisle in Ottawa; and Rockhill in Montreal.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
8 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
A summary of the repositioning activities for the three months and year ended December 31, 2019 is set out below1.
Property
Minto Yorkville
Leslie York Mills
High Park Village
Edmonton properties
Carlisle
Castle Hill
Rockhill
Total
REIT
Ownership
Interest
Suites Repositioned and Leased
Three months ended
December 31, 2019
Year ended
December 31, 2019
Remaining
Suites to
Reposition
Total Suites
eligible to
Reposition
Proportion
Complete
100%
50%
40%
100%
100%
100%
50%
3
19
9
7
13
7
9
67
22
49
15
50
29
43
11
219
53
360
392
87
162
133
923
99
409
407
171
191
176
934
2,110
2,387
46%
12%
4%
49%
15%
24%
1%
12%
1 All suite counts, including co-owned properties, are presented at 100% and not at the REIT's ownership share.
Leslie York Mills, Toronto
High Park Village, Toronto
Rockhill, Montreal
Management continues to regulate the pace of repositionings given the need to balance the short-term dilutive impact of
repositioning on FFO, while maintaining NAV accretion. Suites undergoing repositioning are unavailable for approximately 30 to
60 days depending on the type of suite and the extent of improvements. The opportunity cost of lost revenue impacts FFO in the
short term but the value created from the invested capital creates long term value for Unitholders.
The pace of repositioning at Minto Yorkville has slowed as expected, as the supply of unrenovated suites for repositioning decreases
and the number of previously renovated suites turning over increases. After the successful implementation of the test suites, new
repositioning programs at Carlisle, Castle Hill and Rockhill commenced during the year. The REIT also continued with the
repositioning program at High Park Village established prior to its acquisition.
The following includes a summary of the costs and returns from the repositioning activities for the three months and year ended
December 31, 2019:
Suites renovated
Suites renovated (at the REIT's ownership share)
Average cost per suite
Average annual rental increase per suite
Average annual un-levered return
Three months ended
December 31, 2019
Year ended
December 31, 2019
67
47
46
6.1
$
$
13.2%
219
176
44
5.6
12.7%
$
$
The REIT plans to continue its repositioning programs in 2020 balancing the dilutive impact on FFO with NAV growth. It is estimated
that between 300 and 350 suites will be repositioned in 2020, with an emphasis on properties that have a higher number of suites
still to be renovated such as Leslie York Mills, High Park Village and Rockhill.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
9 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
The REIT has also developed repositioning plans for the recently acquired Le 4300 and Haddon Hall properties. Management
expects to renovate various test suites in order to gauge tenants’ demand for different types of improvements, prior to a broader
roll out of the repositioning program by the second quarter of 2020.
Management targets a return in the range of 8 - 15% on suites renovated and leased.
Outlook
Management is focused on growing the REIT in a strategic and disciplined manner. The growth is expected to come from:
•
•
Organic growth opportunities including realization of embedded gain-to-lease on existing rents;
Value creation from the repositioning of existing assets by investing in in-suite and common area improvements to drive
higher revenue;
• Making strategic acquisitions in major urban centres across Canada;
•
•
Development of purpose-built rental properties and intensification on existing sites that have the capacity for added
density; and,
Capitalizing on our strategic alliance with MPI and its affiliates by accessing their pipeline of assets and opportunities.
Organic Growth Opportunities
Residential real estate in large urban markets is poised for further growth as a result of population growth from immigration and
employment gains, coupled with a lack of supply and rising home ownership costs, which have created an increased demand for
rental suites. Home ownership percentages are also impacted by the changes in mortgage qualification requirements, making it
more difficult for home purchasers to obtain mortgage financing, which further supports demand in the rental market.
The REIT is well-positioned to respond to this strong demand. Management expects to grow revenues by realizing the embedded
gain-to-lease potential in the REIT's portfolio and maintaining high occupancy levels. Since the majority of the REIT portfolio is not
subject to rent control when suites become vacant, Management has the flexibility to move rents to market rates as suites turn
over.
Value Creation from Repositioning Existing Assets
The REIT has been able to drive higher revenue by investing in in-suite and common area improvements. Management continuously
evaluates the existing properties and the need for repositioning. The REIT completed the repositioning at Minto one80five in 2018
and expanded its repositioning program in 2019 to include five additional properties: Carlisle, Castle Hill, Leslie York Mills, High
Park Village and Rockhill. In the fourth quarter of 2019, the REIT acquired two multi-residential rental properties located in Montreal
that have significant repositioning potential. Management has developed a repositioning plan for Le 4300 and Haddon Hall and
expects to renovate test suites to gauge tenants’ demand for different improvements in the second quarter of 2020, prior to a
broader roll out of the repositioning program.
Management is targeting between 300 to 350 suites for repositioning in 2020. There are no assurances that we can achieve the
number of planned suite repositionings as the rate at which the REIT can renovate and lease suites is highly dependent on the
turnover of our tenants and market conditions at the time suite renovations are completed. We will continue to manage our
repositioning program prudently to ensure we balance the short-term FFO dilution impact and creation of NAV growth.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
10 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Development of Purpose-built Rental Properties and Intensification on Existing Sites
Certain REIT properties have the potential to develop additional rental suites on available excess land. Currently, the REIT is exploring
development opportunities at its Richgrove, Leslie York Mills and High Park Village properties. The Leslie York Mills and High Park
Village development opportunities remain subject to municipal, Board of Trustee and investment partner approvals.
Management evaluates and prioritizes potential development projects that can generate NAV and long-term earnings growth for
its Unitholders. Development and construction entails some risk, however we believe the REIT can effectively mitigate this risk
through its strategic alliance with MPI and the Minto Group's extensive experience and track record of successful developments
and construction. Management believes that leveraging this relationship provides the REIT with an advantage compared to its
multi-residential REIT peers.
Strategic Acquisitions in Major Canadian Urban Centres and Capitalizing on our Relationship with MPI
and Affiliates
The REIT acquired six multi-residential rental properties in 2019, comprising a total of 2,890 suites, of which 2,163 suites are co-
owned with institutional partners. All properties are located in core urban markets with two of the properties located in Toronto,
three in Montreal and one in Calgary, further broadening the geographic diversification of the REIT.
The REIT is continuously exploring opportunities to acquire additional properties in the six core urban markets in Canada, with an
emphasis on properties that have opportunities for embedded gain-to-lease potential, repositioning, intensification or a
combination of them. Although the REIT will pursue any opportunity that fits its strategic mandate, it is devoting time and resources
in key markets such as Montreal, Toronto and Vancouver.
In addition to third party acquisitions, the REIT is also focused on capitalizing on its strategic partnership with MPI and its affiliates.
MPI hold interests in a variety of investment vehicles with institutional investors, and some of these interests may be candidates
for transfer to the REIT over time.
The changes in the geographic distribution of the suites since the REIT's initial public offering on July 3, 2018 (the "IPO") is depicted
below:
Suites1 by Region (%)
Total Suite Count: 4,279
Total Suite Count: 6,087
Ottawa
Toronto
Calgary
Edmonton
Montreal
1 For co-owned properties, reflects the REIT's co-ownership interest only.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
11 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Section II - Financial Highlights and Performance
Key Performance Indicators
The Total Portfolio of the REIT at December 31, 2019 comprised 29 multi-residential rental properties, comprising an aggregate of
5,080 suites which are wholly-owned by the REIT, 1,413 suites that are 50% co-owned with institutional partners and 750 suites
that are 40% co-owned with an institutional partner. 257 of these suites operate as furnished suites. Same Property Portfolio results
include revenue, expenses, NOI, NOI margin, average monthly rent per suite and occupancy.
The REIT's operating results are affected by seasonal variations in property expenses and other factors. As a result, the operating
performance and metrics in one quarter may not be indicative of future quarters.
The following tables highlight certain information about the REIT for the periods presented:
Three months ended December 31,
Year ended December 31,
2019
2018
2019
2018¹
Operating
Number of properties
Total suites
Average monthly rent per suite
Occupancy
Average monthly rent per suite - Same
Property Portfolio
Occupancy - Same Property Portfolio
Financial
Revenue
NOI3
NOI margin3
Net income and comprehensive income
Revenue - Same Property Portfolio
NOI3 - Same Property Portfolio
NOI margin3 - Same Property Portfolio
FFO3
FFO per unit3
AFFO3
AFFO per unit3
AFFO Payout Ratio3
Distribution per unit
Distribution yield based on Unit closing
price
$
$
$
$
$
$
$
$
$
$
$
$
29
7,243²
1,579
98.01%
$
1,486
$
97.94%
$
$
$
$
$
$
$
$
$
$
29,868
18,613
62.3%
19,708
22,083
13,846
62.7%
11,737
0.1997
10,212
0.1738
63.3%
0.11
1.90%
23
4,350
1,402
98.76%
1,407
98.78%
21,377
13,022
60.9%
16,217
21,329
12,984
60.9%
8,211
0.2236
6,453
0.1757
58.3%
0.10
2.22%
$
$
$
$
$
$
$
$
$
$
$
$
29
7,243²
1,579
98.01%
$
1,486
$
97.94%
$
$
$
$
$
$
$
$
$
$
104,438
65,297
62.5%
19,966
86,807
53,888
62.1%
39,632
0.8414
34,142
0.7248
58.6%
0.42
1.81%
23
4,350
1,402
98.76%
1,407
98.78%
42,475
26,110
61.5%
49,390
42,427
26,072
61.5%
16,197
0.4411
13,235
0.3604
56.3%
0.20
2.16%
As at
December 31, 2019
December 31, 2018
Change
Leverage
Debt-to-Gross Book Value ratio3
Debt Service Coverage ratio3
Debt-to-EBITDA ratio3
Weighted average term to maturity on fixed rate debt
Weighted average interest rate on fixed rate debt
Valuation
NAV3
NAV per unit3
39.30%
1.93x
10.72x
5.97
3.15%
44.95%
1.97x
11.16x
5.86
3.18%
$
$
1,213,879
20.56
$
$
644,151
17.54
$
$
565 bps
(0.04)x
0.44x
0.11 years
3 bps
569,728
3.02
1 Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
2 Includes 2,163 suites co-owned with institutional partners.
3 Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
12 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
To assist Management and investors in monitoring the REIT's achievement of its objectives, the REIT has defined a number of key
performance indicators to measure the success of its operating and financial performance:
Operating
(i)
Average monthly rent per suite - Represents the average monthly rent for occupied unfurnished suites.
(ii) Occupancy - The ratio of occupied unfurnished suites to the total unfurnished suites in the portfolio that are eligible for rental
at the end of the period. The suites eligible for rental exclude suites that are not available due to renovation.
Financial
(i)
FFO, FFO per unit, AFFO, AFFO per unit, AFFO Payout Ratio, NOI, NOI margin, Debt-to-Gross Book Value ratio, Debt Service
Coverage ratio, Debt-to-EBITDA ratio, NAV, NAV per unit - See Section I, "Non-IFRS Measures".
(ii) Weighted average term to maturity on fixed rate debt - Calculated as the weighted average of the term to maturity on the
outstanding mortgages and Class C LP Units. The REIT monitors the average term to maturity of its mortgages and Class C LP
Units.
(iii) Weighted average interest rate on fixed rate debt - Calculated as the weighted average of the stated interest rates on the
outstanding balances of mortgages and Class C LP Units. The REIT monitors the average cost of its mortgages and Class C LP
Units.
Review of Financial Performance
The following tables highlight selected financial information for the REIT's Same Property Portfolio and Total Portfolio for the three
months and year ended December 31, 2019 compared to the three months ended December 31, 2018 and the period from April
24, 2018 (date of formation) to December 31, 2018. For the year ended December 31, 2018, the operating results cover the 183-
day period from July 2, 2018 to December 31, 2018 and as such, are not comparable to the results for the year ended December
31, 2019. The analysis of the results of operations will focus on the three month periods ended December 31, 2019 and 2018.
Same Property Portfolio
Three months ended December 31,
Year ended December 31,
2019
2018 % Change
2019
2018¹ % Change
Revenue from investment properties
Property operating costs
Property taxes
Utilities
Net operating income
NOI margin
$
$
22,083
4,285
2,341
1,611
13,846
$
$
21,329
4,251
2,245
1,849
12,984
3.5 % $
(0.8)%
(4.3)%
12.9 %
6.6 % $
86,807
16,617
9,287
7,015
53,888
$
$
42,427
8,255
4,524
3,576
26,072
62.7%
60.9% 180 bps
62.1%
61.5%
104.6 %
(101.3)%
(105.3)%
(96.2)%
106.7 %
60 bps
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
13 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Total Portfolio
$
Revenue from investment properties
Property operating costs
Property taxes
Utilities
Net operating income
NOI margin
General and administrative expenses
Finance costs - operations
Fair value gain on investment
properties
Fair value loss on Class B LP Units
Fair value gain on interest rate swap
Fair value loss on Unit-based
compensation
Fees and other income
Bargain purchase gain
Net income and comprehensive
income
Net Operating Income
Three months ended December 31,
Year ended December 31,
2019
2018 % Change
2019
2018¹ % Change
$
29,868
5,794
3,105
2,356
18,613
62.3%
1,717
8,077
(21,885)
12,068
(729)
71
(414)
—
21,377
4,253
2,249
1,853
13,022
39.7 % $
(36.2)%
(38.1)%
(27.1)%
42.9 %
60.9% 140 bps
$
104,438
19,755
11,016
8,370
65,297
62.5%
1,212
5,736
(40,048)
29,829
—
76
—
—
(41.7)%
(40.8)%
(45.4)%
59.5 %
100.0 %
6.6 %
100.0 %
— %
5,607
30,132
(93,216)
104,241
(879)
325
(879)
—
42,475
8,257
4,528
3,580
26,110
145.9 %
(139.3)%
(143.3)%
(133.8)%
150.1 %
61.5% 100 bps
2,267
11,875
(147.3)%
(153.7)%
(40,048)
81,713
—
132.8 %
(27.6)%
100.0 %
76
(327.6)%
—
(79,163)
100.0 %
(100.0)%
$
19,708
$
16,217
21.5 % $
19,966
$
49,390
(59.6)%
Same Property Portfolio NOI for the three months ended December 31, 2019 increased by 6.6% compared to the same period in
2018 mainly as a result of higher rents achieved including from the realization of gain-to-lease upon suite turnover and higher
rents from repositioning.
Total Portfolio NOI for the three months ended December 31, 2019 increased 42.9% compared to the same period in 2018 as a
result of higher revenues from the seven acquisitions since the IPO, comprising a total of 2,960 suites (including 2,163 suites co-
owned with institutional partners) and higher NOI for the Same Property Portfolio.
Revenue from Investment Properties
Same Property Portfolio
Rental revenue
Other property income
Total Portfolio
Rental revenue
Other property income
$
$
$
$
Three months ended December 31,
Year ended December 31,
2019
21,285 $
798
22,083 $
2018 % Change
20,575
754
21,329
3.5% $
5.8%
3.5% $
2019
83,890 $
2,917
86,807 $
2018¹ % Change
40,952
1,475
42,427
104.8%
97.8%
104.6%
Three months ended December 31,
Year ended December 31,
2019
28,962 $
906
29,868 $
2018 % Change
2019
2018¹ % Change
20,623
754
21,377
40.4% $
20.2%
39.7% $
101,230 $
3,208
104,438 $
41,000
1,475
42,475
146.9%
117.5%
145.9%
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
14 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Revenue from investment properties consists of rental and other property income. Rental revenue consists of rents earned from
residential and commercial lease agreements, rents from furnished suites, parking and storage rental revenue. Other property
income consists of ancillary revenue from laundry facilities, utility charges and other fee income from tenants.
For the three months ended December 31, 2019, Same Property Portfolio revenue was 3.5% higher than the same period in 2018.
Revenue was higher primarily due to increases in market rents achieved on new leases and higher revenue earned from repositioned
suites resulting in a total increase of $788. A total of 199 new leases of unfurnished suites were signed during the quarter relating
to the Same Property Portfolio, resulting in an average rent increase of 16.2%, primarily driven by Ontario properties. The increase
in revenue from unfurnished suites was partly offset by the decrease in revenue of $144 from furnished suites mainly from lower
occupancy associated with seasonality.
Total Portfolio revenue for the three months ended December 31, 2019 was 39.7% higher as compared to the same period in 2018,
primarily due to $7,737 of additional revenue from acquisitions made during the year. The remaining increase is due to increased
revenue from the Same Property Portfolio.
Rental performance metrics as at December 31, 2019 and 2018 are as follows: ¹
As at December 31,
Number of suites
Average monthly rent per suite
Occupancy
Same Property Portfolio
Total Portfolio
$
2019
4,283
1,486
97.94%
$
2018
4,280
1,407
98.78%
$
2019
7,243¹
1,579
98.01%
$
2018
4,350
1,402
98.76%
1 Includes 2,163 suites co-owned with institutional partners.
Same Property Portfolio average monthly rent per suite of $1,486 as at December 31, 2019 was $79 per month higher than the
previous year primarily due to realized gain-to-lease on suite turnover across all markets, which experienced higher average monthly
rents compared to the previous year.
Total Portfolio average monthly rent per suite of $1,579 as at December 31, 2019 was $177 per month higher than the previous
year primarily due to the increase in Same Property Portfolio rents, along with the acquisition of new properties with higher average
rental rates. As at December 31, 2019, the average monthly rent from new acquisitions was $1,741.
The decrease in occupancy is primarily a result of market conditions affecting the Alberta properties.
Revenue and Occupancy by Quarter
(Same Property Portfolio)
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
15 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Property Operating Costs
Same Property Portfolio
Three months ended December 31,
Year ended December 31,
2019
2018 % Change
2019
2018¹ % Change
Property operating costs
$
4,285 $
4,251
(0.8)% $
16,617 $
8,255
(101.3)%
Total Portfolio
Three months ended December 31,
Year ended December 31,
2019
2018 % Change
2019
2018¹ % Change
Property operating costs
$
5,794 $
4,253
(36.2)% $
19,755 $
8,257
(139.3)%
Property operating costs relate to direct costs associated with operating the properties and providing services to tenants including
repairs and maintenance, insurance, site staff salaries, cleaning costs, leasing costs, supplies, waste removal and bad debt expense.
The REIT maintains cost discipline and tight controls on property operating costs.
For the three months ended December 31, 2019, property operating costs for the Same Property Portfolio were slightly unfavourable
compared to the same period in 2018 primarily due to an increase in insurance premiums, partially offset by lower overhead costs
incurred to operate the Same Property Portfolio, which are fixed in nature and decrease as the REIT portfolio grows.
For the three months ended December 31, 2019, property operating costs for the Total Portfolio were 36.2% higher than the same
period in 2018, primarily due to the acquisitions completed since the IPO.
For the three months ended December 31, 2019, Total Portfolio property operating costs as a percentage of revenue were 19.4%,
compared to 19.9% for the same period in 2018.
Property Taxes
Same Property Portfolio
Three months ended December 31,
Year ended December 31,
2019
2018 % Change
2019
2018¹ % Change
Property taxes
$
2,341 $
2,245
(4.3)% $
9,287 $
4,524
(105.3)%
Total Portfolio
Three months ended December 31,
Year ended December 31,
2019
2018 % Change
2019
2018¹ % Change
Property taxes
$
3,105 $
2,249
(38.1)% $
11,016 $
4,528
(143.3)%
Property taxes for the Same Property Portfolio of $2,341 for the three months ended December 31, 2019 were higher as compared
to the same period in 2018 as a result of increases in assessed values and changes in tax rates.
For the three months ended December 31, 2019, Total Portfolio property taxes were higher as compared to the same period in
2018 primarily due to the acquisitions. Total Portfolio property taxes as a percentage of revenue were 10.4% for the three months
ended December 31, 2019, compared to 10.5% for the same period in 2018.
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
16 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Utilities
Same Property Portfolio
Electricity
Natural gas
Water
Total Portfolio
Electricity
Natural gas
Water
Three months ended December 31,
Year ended December 31,
2019
579 $
477
555
1,611 $
2018 % Change
748
541
560
1,849
22.6% $
11.8%
0.9%
12.9% $
2019
3,052 $
1,522
2,441
7,015 $
2018¹ % Change
1,633
659
1,284
3,576
(86.9)%
(131.0)%
(90.1)%
(96.2)%
Three months ended December 31,
Year ended December 31,
2019
758 $
964
634
2,356 $
2018 % Change
750
541
562
1,853
(1.1)% $
(78.2)%
(12.8)%
(27.1)% $
2019
3,476 $
2,211
2,683
8,370 $
2018¹ % Change
1,635
659
1,286
3,580
(112.6)%
(235.5)%
(108.6)%
(133.8)%
$
$
$
$
Utilities consist of electricity, natural gas and water for the rental properties. Utility costs are seasonal and can be highly variable
from one period to the next. Utility cost is dependent upon seasonality-driven usage, as well as utility rates and commodity prices.
Same Property Portfolio utilities for the three months ended December 31, 2019 were $238 favourable as compared to the same
period in 2018, primarily as a result of a one-time electricity refund of $146 for a Toronto property and lower electricity and natural
gas consumption due to the milder winter weather.
Higher utilities expense for the Total Portfolio was primarily as a result of the investment property acquisitions, partially offset by
lower utilities consumption for the Same Property Portfolio. Total Portfolio utilities for the three months ended December 31, 2019
represent 7.9% of revenue, compared to 8.7% for the same period in 2018.
General and Administrative Expense
General and administrative expense relates to the administration of the REIT, including: audit fees, legal fees, salaries and benefits
for certain dual REIT employees, Trustee fees and costs associated with support services provided under the Administrative Support
Agreement ("ASA") between the REIT and MPI. The general and administrative expense of $1,717 for the three months ended
December 31, 2019 was 41.7% higher compared to the same period in 2018. The amount charged under the ASA increased by
$141 and salaries for dual employees increased by approximately $108 due to the growth of the REIT's portfolio. The REIT also
incurred fees of $124 associated with a short-term back office support agreement for the Rockhill acquisition in Montreal.
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
17 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Finance Costs - Operations
Interest expense on mortgages
Interest expense and standby fees on
credit facility
Interest expense on unsecured debt
Amortization of financing charges
Amortization of CMHC premiums
Amortization of mark-to-market
adjustments
Interest income
Gain on retirement of debt
Interest expense and other financing
charges
Distributions on Class B LP Units
Distributions on Class C LP Units
$
Three months ended December 31,
Year ended December 31,
2019
3,637
709
—
68
33
(195)
(438)
—
3,814
2,504
1,759
8,077 $
2018 % Change
1,987
(83.0)%
400
162
51
4
(77.3)%
100.0 %
(33.3)%
(725.0)%
(222)
12.2 %
(8) 5,375.0 %
(100.0)%
(573)
2019
12,255
2,619
—
233
83
(778)
(541)
—
2018¹ % Change
3,881
(215.8)%
809
298
92
4
(223.7)%
100.0 %
(153.3)%
(1,975.)%
(463)
(68.0)%
(8) 6,662.5 %
(100.0)%
(573)
1,801
2,137
1,798
5,736
(111.8)%
(17.2)%
2.2 %
(40.8)% $
13,871
9,195
7,066
30,132 $
4,040
(243.3)%
4,229
3,606
11,875
(117.4)%
(96.0)%
(153.7)%
Finance costs comprise interest expense on secured and unsecured debt; amortization of financing charges, Canada Mortgage and
Housing Corporation ("CMHC") premiums and mark-to-market adjustments on the debt; distributions on Class B LP Units and Class
C LP Units; gain on retirement of debt, offset by interest income.
Finance costs for the three months ended December 31, 2019 were higher by $2,341 compared to the same period in 2018,
primarily due to interest expense on new mortgage loans and use of the credit facility in connection with the acquisitions completed
during the year, additional distributions arising from both an increase in the distribution rate and issuances of Class B LP Units and
gain on the retirement of debt in 2018 pertaining to the early repayment of a mortgage. The increase was partially offset by interest
income earned on loan advances made to an affiliate of MPI, and on the temporary investment of the funds received from the
issuance of Units in October.
Fair Value Gain on Investment Properties
Fair value of investment properties is determined using the direct capitalization approach, by applying an appropriate capitalization
rate which reflects the characteristics, location and market conditions to the estimated 12 month stabilized forecast NOI for each
property, reduced by an estimate of future capital expenditures.
The fair value gain on investment properties of $21,885 for the three months ended December 31, 2019 was primarily due to
growth in forecast NOI resulting in a fair value gain of $26,780, compounded by an increase of $8,574 from changes in capitalization
rates and partially offset by an increase of $13,469 in the capital expenditures reserve.
The fair value gain on investment properties of $93,216 for the year ended December 31, 2019 was comprised of a fair value gain
of $113,345 from growth in forecast NOI, plus $8,686 arising from changes in capitalization rates offset by a $28,815 increase in
the capital expenditures reserve.
The increase from changes in forecast NOI for the year ended December 31, 2019 was primarily due to properties located in Ottawa
and Toronto which have generated higher rental rates due to strong markets conditions and repositioned suites. The changes in
the capitalization rates are mainly driven by properties in Toronto and low-rise properties in Ottawa for which the market has
experienced compression. The increased capital expenditures reserve is primarily due to ongoing capital expenditure requirements
and the advancement of repositioning programs.
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
18 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Fair Value Loss on Class B LP Units
The Class B LP Units are owned by MPI and a limited partnership wholly-owned by MPI. The Class B LP Units are economically
equivalent to Units, in that they receive distributions equal to the distributions paid on Units and are exchangeable into Units at
the holder's option. The Class B LP Units are classified as financial liabilities and measured at fair value with any changes in fair
value recorded in net income. The fair value gain or loss on Class B LP Units is measured every period by reference to the closing
trading price of the Units. An increase in the Unit closing price over the period results in a fair value loss, whereas a decrease in
the Unit closing price over the period results in a fair value gain.
For the three months ended December 31, 2019, the increase in Class B LP Units outstanding and the increase in Unit price from
$22.62 to $23.15 resulted in a fair value loss of $12,068. For the same period in 2018, the opening Unit price was $17.07 and closing
Unit price was $18.50, resulting in a fair value loss of $29,829.
During the year ended December 31, 2019, the REIT issued an additional 2,806,122 Class B LP Units in connection with the High
Park Village acquisition and exchanged 896,459 Class B LP Units for Units. For the year ended December 31, 2019, the Unit price
increased from $18.50 to $23.15, resulting in a fair value loss of $104,241. For 2018, the opening Unit price on July 3, 2018 was
$14.50 and the closing Unit price was $18.50, resulting in a fair value loss of $81,713.
Fair Value Gain on Interest Rate Swap
In connection with the acquisition of High Park Village on August 1, 2019, the REIT assumed an interest rate swap to receive variable
interest based on one month bankers' acceptance plus 185 bps and pay fixed interest at 3.38%. For the three months and year
ended December 31, 2019, the REIT recognized a fair value gain of $729 and $879, respectively.
Fair Value Loss on Unit-Based Compensation
The REIT has issued Deferred Units to its Trustees and executives. The liability is remeasured at each reporting date based on the
closing Unit price with changes in the value recorded in net income.
For the three months ended December 31, 2019, the Unit price increased from $22.62 to $23.15, which resulted in a fair value
loss of $71. The fair value loss was also impacted by additional Deferred Units granted to the Trustees and executives.
For the year ended December 31, 2019, the Unit price increased from $18.50 to $23.15, resulting in a fair value loss of $325. The
fair value loss was also impacted by additional Deferred Units granted to the Trustees and executives, offset by forfeiture of Deferred
Units upon the resignation of an executive.
Fees and Other Income
Fees and other income represent revenue from asset, project and property management services provided by the REIT in connection
with properties co-owned with institutional partners. The REIT began earning these fees during 2019.
Summary of Quarterly Results
Q4 2019
Q3 2019
Q2 2019
Q1 2019
Q4 2018
Q3 2018
Revenue from investment properties
NOI1
NOI margin1
Net income (loss) and comprehensive income (loss)
FFO1
FFO per unit1
AFFO1
AFFO per unit1
Distributions declared
AFFO Payout Ratio1
$ 29,868
$ 18,613
$ 27,639
$ 17,588
$ 24,796
$ 15,786
$ 22,135
$ 13,310
$ 21,377
$ 13,022
$ 21,098
$ 13,088
62.3%
63.6%
63.7%
60.1%
60.9%
62.0%
$ 19,708
$ 11,737
$ 0.1997
$ 10,212
$ 0.1738
6,463
$
63.30%
$ (29,889) $ 48,816
$
$ 10,808
9,769
$ 0.2146
$ 0.2280
8,445
$
9,385
$
$ 0.1855
$ 0.1980
4,665
5,101
$
$
55.24%
54.35%
$ (18,699) $ 16,217
$
$
8,211
7,318
$ 0.2236
$ 0.1993
6,453
$
6,100
$
$ 0.1757
$ 0.1661
3,762
3,764
$
$
58.30%
61.70%
$ 33,173
$
7,986
$ 0.2175
6,782
$
$ 0.1847
3,683
$
54.31%
¹ Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
19 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
The increase in property revenue is primarily from acquisitions completed throughout 2019, as well as increase in Same Property
Portfolio revenue from favourable rental market conditions and repositionings.
The REIT's operating results are affected by seasonal variations in property expenses and other factors. As a result, the operating
performance and metrics in one quarter may not be indicative of future quarters. The winter months typically tend to generate
weaker performance due to increased energy consumption and snow removal costs.
FFO per unit and AFFO per unit were lower for the three months ended December 31, 2019, primarily as a result of the issuance
of additional Units. The REIT issued 9,850,000 Units from treasury on October 22, 2019 to finance the acquisition of Haddon Hall
and Le 4300, which did not close until November 20, 2019, and this timing gap resulted in a dilutive impact on FFO per unit and
AFFO per unit. Overall, the acquisitions completed for the year ended December 31, 2019, were accretive to NAV and NAV per
unit. The impact of suites taken offline as part of the repositioning program during the three months ended December 31, 2019
also had a dilutive impact on FFO per unit and AFFO per unit.
Summary of Annual Results
As at and for the year ended
Total assets
Investment properties
Total liabilities
Total non-current liabilities
Revenue from investment properties
NOI1
NOI margin1
Net income and comprehensive income
FFO1
FFO per unit1
AFFO1
AFFO per unit1
Distributions declared
AFFO Payout Ratio1
Annual distribution per unit2
NAV1
NAV per unit1
December 31, 2019
2,050,300
2,016,328
1,363,525
1,306,124
104,438
65,297
62.5%
19,966
39,632
0.8414
34,142
0.7248
19,994
58.56%
0.44
1,213,879
20.56
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
December 31, 20183
1,206,925
1,197,811
948,673
917,317
42,475
26,110
61.5%
49,390
16,197
0.4411
13,235
0.3604
7,445
56.25%
0.41
644,151
17.54
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
¹ Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
2 Effective August 1, 2019, the REIT's annual distribution was increased from $0.41 per unit to $0.44 per unit.
3 Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
20 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Section III - Assessment of Financial Position
Investment Properties
The following table summarizes the changes in investment properties:
As at
Opening balance
Additions
Acquisition of the Initial Portfolio
Acquisitions of investment properties
Capital expenditures
Fair value gain
Closing balance
Acquisitions of Investment Properties
December 31, 2019
December 31, 2018
1,197,811 $
—
—
702,393
22,908
93,216
2,016,328 $
1,123,000
20,376
14,387
40,048
1,197,811
$
$
The REIT completed the following investment property acquisitions for the year ended December 31, 2019, which were accounted
for as asset acquisitions and have contributed to the operating results effective from their respective acquisition date:
Property
370 & 380 Quarry Way SE, Calgary,
AB ("The Quarters")
740 & 750 York Mills Road and 17
Farmstead Road, Toronto, ON
("Leslie York Mills")
4850-4874 Côte-des-Neiges Road,
Montreal, QC ("Rockhill")
66 Oakmount Road, 111 Pacific
Avenue and 255 Glenlake Avenue,
Toronto, ON ("High Park Village")
Date of
acquisition
Suites
Total
acquisition
cost
Mortgage
financing
Interest rate and
maturity
Ownership
interest
January 7, 2019
199
$63,954
$44,316
3.04%
September 1, 2029
100%
May 1, 2019
409
76,804
23,392
May 7, 2019
1,004
137,532
67,500
August 1, 2019
750
136,733
39,480
2.82%
February 1, 2021
3.42%
July 25, 2029
One month bankers'
acceptance plus 185
bps¹
April 1, 2026
50%
50%
40%
100%
4300 de Maisonneuve Boulevard
West, Montreal, QC ("Le 4300")
November 20,
2019
318
196,343
—
—
2150-2174 Sherbrooke Street West,
2211-2255 Lambert Closse Street,
2151-2177 Lincoln Avenue and
2260 Chomedey Street, Montreal,
QC ("Haddon Hall")
November 20,
2019
210
91,027
45,000
2,890
$702,393
$219,688
3.16%
December 1, 2030
100%
¹ In connection with the High Park Village acquisition, the REIT assumed an interest rate swap to receive variable interest based on one month
bankers' acceptance plus 185 bps and pay fixed interest at 3.38%.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
21 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Capital Expenditures
The REIT has established a capital improvement program that is designed to extend the useful life of its investment properties,
improve operating efficiency, increase curb appeal, enhance and maintain earnings capacity and meet the expectations of its
tenants. The REIT’s capital expenditures are classified into two main categories: value-enhancing capital spend and maintenance
capital expenditures.
Total expenditures
Value-enhancing capital spend
Building improvements
Suite upgrades
Maintenance capital expenditures
Maintenance capital expenditures per
suite
$
$
Three months ended December 31,
Year ended December 31,
2019
8,853 $
5,683
1,342
7,025
1,828
2018
6,892
$
2019
22,908 $
3,455
2,387
5,842
1,050
9,790
8,188
17,978
4,930
309 $
245
$
908 $
2018¹
14,387
6,902
5,212
12,114
2,273
531
Value-enhancing capital expenditures consist of either building improvements or suite upgrades. Building improvements include
common area and amenity space upgrades, energy conservation projects, building envelope enhancements and suite
enhancements performed, when necessary, as suites turn over. Suite upgrades represent capital expenditures incurred on larger
repositioning programs that are designed to generate incremental returns. The repositioning programs include full-scale suite
renovations that strategically target certain properties or certain geographic locations as discussed previously in this MD&A under
Section I, "Value Creation - Repositioning" and "Outlook". The REIT’s active repositioning programs for the year ended December
31, 2019 included Minto Yorkville, Leslie York Mills, High Park Village , the three Edmonton properties, Castle Hill, Carlisle and
Rockhill. Value-enhancing capital expenditures are intended to achieve NAV accretion, long term AFFO accretion and increase
tenant satisfaction, however tend to be AFFO dilutive in the short term. These expenditures can vary in timing and can often
represent significant economic outlays.
Maintenance capital expenditures include expenditures that are incurred in order to maintain the existing earnings capacity of the
REIT’s investment properties. The actual maintenance capital expenditures for the year ended December 31, 2019 were $4,930 or
$908 per suite, which is in line with Management's estimate of maintenance capital expenditure reserve used in the AFFO
calculation. The expenses related primarily to maintenance of garage, roofs, fire safety systems, mechanical equipment as well as
regular maintenance of building common areas and occupied suites. Much of the maintenance capital expenditure work takes
place outside and therefore is highly dependent on favourable weather conditions and as a result expenditures may vary significantly
quarter to quarter.
For 2020, Management expects to spend $900 per suite on average annually on maintenance capital expenditures.
Valuation
Fair value for residential properties is determined using the direct capitalization approach. Estimated stabilized net operating
income is based on the respective property’s forecasted results, less estimated aggregate future capital expenditures. Capitalization
rates reflect the characteristics, location and market of each property. Fair value is determined based on internal valuation models
incorporating market data and valuations performed by external appraisers.
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
22 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Capitalization rates fluctuate depending on market conditions. The capitalization rates of the portfolio for each of the REIT's
residential rental markets were as follows:
As at
December 31, 2019
December 31, 2018
Ottawa, Ontario
Toronto, Ontario
Edmonton, Alberta
Calgary, Alberta
Montreal, Quebec
Average capitalization rate
Low
4.00%
3.25%
4.25%
4.15%
3.43%
High
4.75%
3.75%
4.25%
4.25%
3.75%
3.92%
Low
4.00%
3.38%
4.25%
4.15%
N/A
High
5.00%
3.75%
4.25%
4.42%
N/A
4.20%
Class B LP Units
The Class B LP Units of Minto Apartment Limited Partnership (the "Partnership") receive distributions equivalent to the distributions
paid on Units and are exchangeable at the holder’s option into Units. One Special Voting Unit in the REIT is issued to the holder of
Class B LP Units for each Class B LP Unit held. The limited IAS 32 exception for presentation as equity does not extend to Class B
LP Units. As a result, the Class B LP Units are classified as financial liabilities.
On August 1, 2019, as partial consideration for the acquisition of High Park Village, 2,806,122 Class B LP Units were issued to MPI.
On September 17, 2019, a limited partnership wholly-owned by MPI exchanged 896,459 Class B LP Units for Units.
As at December 31, 2019, there were 22,769,073 (December 31, 2018 - 20,859,410) Class B LP Units outstanding.
Class C LP Units
The Class C LP Units of the Partnership provide for monthly distributions to the holder of such Class C LP Units to be paid in priority
to distributions to holders of the Units and Class B LP Units, subject to certain restrictions. Due to the nature of such distributions,
the Class C LP Units are classified as financial liabilities. As at December 31, 2019, there were 22,978,700 (2018 - 22,978,700) Class
C LP Units outstanding.
The mortgages of investment properties to which the distributions on the Class C LP Units relate bear a weighted average contractual
interest rate of 3.16% (December 31, 2018 - 3.16%) and mature at various dates between 2023 and 2030.
Secured Debt
Secured debt includes mortgages and credit facility. The REIT maintains mortgages with both fixed and variable interest rates that
are secured by investment properties. The fixed rate mortgages bear interest at a weighted average contractual interest rate of
3.14% (December 31, 2018 - 3.20%) and mature at various dates from 2020 to 2030. The variable rate mortgage bears interest at
one month bankers' acceptance rate plus 185 bps and matures on April 1, 2026. The variable interest rate is fixed at 3.38% with
the assumption of an interest rate swap.
The REIT has a committed revolving credit facility of $200,000 (December 31, 2018 - $150,000) that is secured by several investment
properties, matures on July 3, 2021 and is used to fund working capital requirements, acquisitions and for general corporate
purposes. As at December 31, 2019, $108,991 (December 31, 2018 - $114,075) of this facility is available. The credit facility bears
interest at bankers' acceptance rate plus 175 bps or prime plus 75 bps and as at December 31, 2019, the weighted average variable
interest rate was 3.72% (December 31, 2018 - 3.94%).
On March 6, 2019, in connection with the acquisition of The Quarters, the REIT obtained a new CMHC-insured mortgage of $44,316,
bearing interest at 3.04% and maturing on September 1, 2029.
On May 1, 2019, the REIT assumed mortgage financing of $23,392 in connection with the acquisition of Leslie York Mills, bearing
interest at 2.82% and maturing on February 1, 2021.
On May 7, 2019, in connection with the acquisition of Rockhill, the REIT secured conventional mortgage financing for $67,500,
bearing interest at 3.42% and maturing on July 25, 2029. On August 19, 2019, CMHC insurance was obtained for the mortgage,
with an additional $1,544 borrowed to finance CMHC premiums. The CMHC-insured mortgage bears interest at 2.91% and matures
on October 1, 2029.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
23 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
On August 1, 2019, in connection with the acquisition of High Park Village, the REIT assumed a $39,480 variable rate mortgage
which bears interest at bankers' acceptance rate plus 185 bps and matures on April 1, 2026. In addition, the REIT also assumed an
interest rate swap to receive variable interest based on one month bankers' acceptance rate plus 185 bps and pay fixed interest
rate at 3.38%.
On November 18, 2019, the credit facility limit was increased to $200,000 by adding Le 4300 as additional security. The increase
in the credit facility limit provides the REIT with additional liquidity and flexibility as it continues to explore opportunities for growth.
On November 20, 2019, in connection with the acquisition of Haddon Hall, the REIT secured conventional mortgage financing for
$45,000, bearing interest at 3.16% and maturing on December 1, 2030. Management is in the process of arranging CMHC insurance
for this mortgage.
Units
The following table presents the change in and outstanding amount of Units for the year ended December 31, 2019:
Authorized
Units issued and outstanding:
Balance, December 31, 2018
Issued, April 15, 2019, net
Issued on exchange for Class B LP Units, September 17, 2019
Issued, October 22, 2019, net
Issued, November 25, 2019, net
Balance, December 31, 2019
Units
Unlimited
15,863,100 $
8,809,000
896,459
9,850,000
856,280
20,411,739
36,274,839 $
$
212,078
165,172
20,000
215,401
18,783
419,356
631,434
On April 15, 2019 the REIT completed the issuance of 8,809,000 Units from treasury at a price of $19.60 per Unit for net proceeds
of $165,172. The issuance included 1,149,000 Units sold pursuant to the full exercise of an over-allotment option granted to the
underwriters. Underwriters' fees and expenses relating to the issuance were $7,484.
On September 17, 2019, the REIT issued 896,459 Units from treasury in exchange for Class B LP Units at a price of $22.31 per Unit
and valued at $20,000.
On October 22, 2019, the REIT completed the issuance of 9,850,000 Units from treasury at a price of $22.85 per Unit for net
proceeds of $215,401. Underwriters' fees and expenses relating to the issuance were $9,672.
On November 25, 2019, the REIT completed the issuance of an additional 856,280 Units from treasury at a price of $22.85 for net
proceeds of $18,783 pursuant to the over-allotment option granted to the underwriters in connection with the issuance of Units
on October 22, 2019. Underwriters' fees and expenses relating to the issuance were $783.
Distributions
Distributions are paid monthly to Unitholders of record at the close of business on the last day of a month on or about the 15th
day of the following month. Distributions must be approved by the Board of Trustees and are subject to change depending on the
general economic outlook and financial performance of the REIT.
On August 1, 2019, the Board of Trustees approved a 7.3% increase to the REIT's annual distribution from $0.41 per Unit to $0.44
per Unit. The increase was effective for the REIT's August 2019 cash distribution paid on September 16, 2019.
For the year ended December 31, 2019, distributions to Unitholders of $10,799 (December 31, 2018 - $3,216) were declared.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
24 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Section IV - Liquidity, Capital Resources and Contractual
Commitments
Liquidity and Capital Resources
The REIT's capital structure, shown in the table below, is comprised of mortgages, a credit facility, Class B LP Units, Class C LP Units
and Unitholders' equity.
As at
Liabilities (principal amounts outstanding):
Class B LP Units
Class C LP Units
Mortgages
Credit facility
Unitholders' equity
December 31, 2019
December 31, 2018
$
$
527,104 $
222,702
487,876
91,009
1,328,691
686,775
2,015,466 $
385,899
227,721
273,574
35,925
923,119
258,252
1,181,371
Class B LP Units are economically equivalent to Units and are exchangeable for Units at the Class B LP unitholder’s option. Due to
their exchangeable nature, IAS 32 requires Class B LP Units to be accounted for as a financial liability. Class B LP Units are not
indebtedness for borrowed money and are not included in the determination of Debt-to-Gross Book Value ratio.
The objective of the REIT’s capital strategy is to arrange capital at the lowest possible cost while maintaining diversity in its lending
base, balance in its maturity schedule and sufficient liquidity to fund the ongoing operations of the REIT and pay distributions. At
December 31, 2019, 64% (December 31, 2018 - 76%) of the REIT's total debt is CMHC-insured and approximately 89% (December
31, 2018 - 93%) is fixed rate.
The REIT uses a prudent amount of debt financing in its capital structure. Pursuant to the REIT’s declaration of trust, overall
indebtedness, as measured by the Debt-to-Gross Book Value ratio, is not to exceed 65% (or 70% of Gross Book Value including
convertible debentures). Notwithstanding this limit, it is Management’s current intention to maintain a more conservative Debt-
to-Gross Book Value ratio and Management is currently targeting a range of 45%-55%. The REIT’s Debt-to-Gross Book Value ratio
is calculated as follows:
As at
Class C LP Units
Mortgages
Credit facility
Total debt
Total assets
$
December 31, 2019
December 31, 2018
$
225,537
489,307
91,009
805,853
2,050,300
231,037
275,601
35,925
542,563
1,206,925
Debt-to-Gross Book Value ratio
39.30%
44.95%
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
25 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Management measures the Debt-to-EBITDA ratio as a measure of the REIT's financial health and liquidity. Generally, the lower the
ratio, the lower the credit risk. The REIT’s Debt-to-EBITDA ratio is calculated as follows:
As at
NOI
Fees and other income
General and administrative expenses
Impact of annualization for December 31, 2018 1
Impact on NOI from stabilized earnings from acquisitions during the
year
EBITDA
Total debt, net of cash
Debt-to-EBITDA ratio
$
December 31, 2019
65,297 $
879
(5,607)
60,569
—
14,410
74,979
803,925
10.72x
December 31, 20181
26,110
—
(2,267)
23,843
23,804
876
48,523
541,671
11.16x
The REIT has staggered the maturities of its debt financings, including distributions payable on the Class C LP Units, to reduce
interest rate risk and its risk related to refinancing. As at December 31, 2019, the weighted average term to maturity on the REIT’s
fixed rate debt was 5.97 (December 31, 2018 - 5.86) years and the weighted average interest rate on fixed rate debt was 3.15%
(December 31, 2018 - 3.18%). The contractual payments under the REIT’s debt financing is summarized in the table below.
Principal Repayments
Principal at Maturity
Year
Mortgages
Class C LP
Units
Mortgages
Credit facility
Class C LP
Units
$
2020
2021
2022
2023
2024
2025
Thereafter
9,133 $
9,194
8,589
7,288
5,644
5,177
17,792
$
5,178
5,341
5,510
5,298
4,319
3,067
4,208
12,094 $
22,077
87,161
47,620
48,182
22,743
185,182
— $
91,009
—
—
—
—
—
— $
—
—
44,936
46,177
60,474
38,194
Total
26,405
127,621
101,260
105,142
104,322
91,461
245,376
$
62,817 $
32,921
$
425,059 $
91,009 $
189,781 $
801,587
Interest
Rate2
3.59%
3.55%
3.22%
3.05%
3.04%
3.19%
3.15%
% of
Total
3.3%
15.9%
12.6%
13.1%
13.0%
11.4%
30.6%
100%
As of December 31, 2019, current liabilities of $57,401 (December 31, 2018 - $31,532) exceeded current assets of $8,396 (December
31, 2018 - $7,289), resulting in a net working capital deficit of $49,005 (December 31, 2018 - $24,243). The REIT's immediate
liquidity needs are met though cash-on-hand, cash flow from operations, property-level debt and availability on its revolving credit
facility. As of December 31, 2019, liquidity was $110,919 (December 31, 2018 - $114,967) consisting of cash of $1,928 (December
31, 2018 - $892) and $108,991 (December 31, 2018 - $114,075) of available borrowing capacity under the revolving credit facility.
Management believes that there is sufficient liquidity to meet the REIT’s financial obligations for the foreseeable future.
On December 21, 2018, the REIT filed a short form base shelf prospectus, which allows the REIT to issue Units, debt securities and
subscription receipts for an amount up to $750,000 during the 25-month period that the short form base shelf prospectus is
effective. The net proceeds from the sale of securities for cash may be used for potential future acquisitions, capital expenditures,
to repay indebtedness and general working capital purposes. For the year ended December 31, 2019, the REIT completed two
equity issuances and raised gross proceeds of $417,295. As at December 31, 2019, the amount available to be raised pursuant to
the short form base shelf prospectus is $332,705.
1 Based on operations for the 183-day period from July 2, 2018 to December 31, 2018. EBITDA for December 31, 2018 was annualized.
2 Weighted average interest rates for maturing mortgages, credit facility and Class C LP Units.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
26 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Cash Flows
The REIT held a cash balance of $1,928 as at December 31, 2019. The sources and use of cash flow for the three months and years
ended December 31, 2019 and 2018 are as follows:
Operating activities
Financing activities
Investing activities
Three months ended December 31,
Year ended December 31,
$
2019
25,884 $
267,747
(294,183)
2018
13,847
774
(15,267)
$
2019
53,830 $
537,958
(590,752)
2018¹
29,163
(10,683)
(17,588)
Cash provided by operating activities and cash distributions
The following table outlines the differences between cash from operating activities, net income and cash distributions in accordance
with National Policy 41-201, Income Trusts and Other Indirect Offerings:
Three months ended December 31,
Year ended December 31,
Net income and comprehensive income
Add: distributions on Class B LP Units
Less: distributions paid
Excess of net income and comprehensive
income over total distributions paid
Cash provided by operating activities
Less: interest paid
Less: distributions paid
Excess of cash provided by operating
activities over total distributions and
interest paid
Distributions declared
$
$
$
$
2019
19,708 $
2,504
22,212
(5,970)
16,242 $
25,884 $
(5,642)
20,242
(5,970)
$
$
$
2018
16,217
2,137
18,354
(3,762)
14,592
13,847
(4,493)
9,354
(3,762)
2019
19,966 $
9,195
29,161
(19,084)
10,077 $
53,830 $
(20,869)
32,961
(19,084)
14,272
5,592
13,877
6,464 $
3,762
$
19,994 $
2018¹
49,390
4,229
53,619
(6,190)
47,429
29,163
(7,492)
21,671
(6,190)
15,481
7,445
The REIT has net income and comprehensive income for the year ended December 31, 2019. Net income is not used as a proxy
for distributions as it is impacted by several non-cash items, including fair value gains or losses on investment properties, Class B
LP Units and an interest rate swap. Amounts retained in excess of distributions declared are used to fund acquisitions and capital
expenditure requirements.
While cash flows provided by operating activities are generally sufficient to cover distribution requirements, the timing of expenses
and fluctuations in non-cash working capital may result in temporary shortfall. In these cases, some portion of distributions may
come from the REIT's capital or financing sources other than cash flows provided by operating activities.
For the three months and year ended December 31, 2019, cash provided by operations exceeded distributions and interest paid.
Cash provided by financing activities
For the three months ended December 31, 2019, cash flows provided by financing activities were $267,747, representing cash
inflows from the issuance of Units, net of issue costs, of $234,264, draws from the credit facility of $23,384 and from mortgage
financing of $45,000. These cash inflows were offset by loan advances of $19,727 made to an affiliate of MPI in connection with
the development of Fifth and Bank, payment of CMHC premiums and deferred financing costs of $101, repayments on mortgages
of $2,189, distributions on various classes of units of $7,242 and interest paid of $5,642.
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
27 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
For the year ended December 31, 2019, cash flows provided by financing activities were $537,958, representing cash inflows from
the issuance of Units, net of issue costs, of $399,436, from mortgage financing of $158,360 and draws from the credit facility of
$55,084. These cash inflows were offset by loan advances of $19,727 made to an affiliate of MPI, payment of CMHC premiums
and deferred financing costs of $3,293, repayments on mortgages of $6,930, distributions on various classes of units of $24,103
and interest paid of $20,869.
Cash used in investing activities
Cash flows used in investing activities for the three months ended December 31, 2019 were $294,183 and represent the acquisition
of investment properties in Montreal for $286,177 and capital additions to investment properties of $8,006.
For the year ended December 31, 2019, cash flows used in investing activities were $590,752 and represent investment property
acquisitions in Calgary, Toronto and Montreal for $571,573 and capital additions to investment properties of $19,179.
Reconciliation of Non-IFRS Measures
FFO and AFFO
FFO and AFFO are used for evaluating operating performance and are computed as follows1:
Three months ended December 31,
Year ended December 31,
Net income and comprehensive income
Distributions on Class B LP Units
Fair value (gain) loss on:
Investment properties
Class B LP Units
Interest rate swap
Unit-based compensation
Bargain purchase gain
$
2019
$
19,708
2,504
2018
16,217
2,137
$
2019
$
19,966
9,195
(21,885)
12,068
(729)
71
—
(40,048)
29,829
—
76
—
(93,216)
104,241
(879)
325
—
Funds from operations (FFO)
$
11,737
$
8,211
$
39,632
$
Maintenance capital expenditure reserve
(1,330)
Amortization of mark-to-market
adjustments
Gain on retirement of debt
(195)
—
(963)
(222)
(573)
(4,712)
(778)
—
20182
49,390
4,229
(40,048)
81,713
—
76
(79,163)
16,197
(1,926)
(463)
(573)
Adjusted funds from operations (AFFO)
$
10,212
$
6,453
$
34,142
$
13,235
Distributions on Class B LP Units
Distributions on Units
AFFO Payout Ratio
Weighted average number of Units and
Class B LP Units
FFO per unit
AFFO per unit
2,504
3,960
6,464
63.30%
2,137
1,625
3,762
58.30%
9,195
10,799
19,994
58.56%
4,229
3,216
7,445
56.25%
58,758,485
36,722,510
47,103,691
36,722,510
$
$
0.1997
0.1738
$
$
0.2236
0.1757
$
$
0.8414
0.7248
$
$
0.4411
0.3604
FFO was higher for the three months ended December 31, 2019 as compared to 2018, reflecting the positive NOI variance driven
by higher rents achieved, acquisitions during 2019 and the realization of gain-to-lease potential. AFFO was higher for the three
months ended December 31, 2019 as compared to 2018, primarily as a result of higher FFO, along with an adjustment for the gain
on retirement of debt in 2018. This increase was offset by an increase in maintenance capital expenditure reserve caused by the
growing portfolio suite count from the acquisitions completed during the year.
¹ See Section I, "Non-IFRS Measures"
2 Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
28 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
FFO per unit and AFFO per unit were lower for the three months ended December 31, 2019 as compared to 2018, as a result of a
higher weighted average number of Units outstanding. The REIT issued 9,850,000 Units from treasury on October 22, 2019 to
finance the acquisition of Haddon Hall and Le 4300 which did not close until November 20, 2019. The timing gap resulted in a
dilutive impact on the FFO per Unit and AFFO per Unit. The impact of suites taken offline for renovation for the three months ended
December 31, 2019 (67 suites compared to 17 in 2018) also contributed to the dilution described above.
NOI and NOI Margin
Same Property Portfolio
$
$
$
Revenue from investment properties
Property operating expenses
NOI
NOI margin
Total Portfolio
Revenue from investment properties
Property operating costs
NOI
NOI Margin
Debt-to-Gross Book Value Ratio
Three months ended December 31,
Year ended December 31,
2019
22,083
8,237
13,846
$
$
62.7%
2018
21,329
8,345
12,984
60.9%
$
$
2019
86,807
32,919
53,888
$
$
62.1%
2018¹
42,427
16,355
26,072
61.5%
Three months ended December 31,
Year ended December 31,
$
2019
29,868
11,255
18,613
62.3%
$
2018
21,377
8,355
13,022
60.9%
$
2019
104,438
39,141
65,297
62.5%
2018¹
42,475
16,365
26,110
61.5%
Refer to Section IV, "Liquidity and Capital Resources" for a reconciliation of Debt-to-Gross Book Value ratio.
Debt Service Coverage
The Debt Service Coverage ratio is calculated as follows:
Three months ended December 31,
Year ended December 31,
NOI
Interest expense on mortgages
Interest expense and standby fees on
credit facility
Interest expense on unsecured promissory
note
Distributions on Class C LP Units:
Principal repayments
Finance costs
Mortgage repayments
Unsecured promissory note repayments
Total debt service
Debt Service Coverage Ratio
$
$
2019
18,613 $
3,637
709
—
1,272
1,759
2,189
—
9,566 $
1.95x
¹ Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
2018
13,022
$
1,987
2019
65,297 $
12,255
2,619
—
5,019
7,066
6,930
—
$
33,889 $
400
162
1,232
1,798
1,139
54
6,772
1.92x
2018¹
26,110
3,881
809
298
2,329
3,606
2,206
105
13,234
1.93x
1.97x
29 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Debt-to-EBITDA Ratio
Refer to Section IV, "Liquidity and Capital Resources" for a reconciliation of Debt-to-EBITDA Ratio.
NAV per unit
As at
Net assets (Unitholders' equity)
Add: Class B LP Units
NAV
Number of Units and Class B LP Units
NAV per unit
December 31, 2019
December 31, 2018
$
$
686,775 $
527,104
1,213,879
59,043,912
20.56 $
258,252
385,899
644,151
36,722,510
17.54
The NAV per unit increased by 17.2% due to the following reasons: (i) organic growth by monetizing the embedded gap to market
rent in the portfolio and increasing earnings, (ii) value creation by deploying capital to improve 219 suites and capture incremental
revenue potential, and (iii) external growth by completing six acquisitions.
Section V - Accounting Estimates and Policies, Controls and
Procedures and Risk Analysis
Critical Judgments in Applying Accounting Policies
The following are the critical judgments that have been made in applying the REIT’s accounting policies:
(i)
Investment property acquisitions
The REIT must assess whether an acquisition transaction should be accounted for as an asset acquisition or a business combination
under IFRS 3, Business Combinations. This assessment requires Management to make judgments on whether the assets acquired
and liabilities assumed constitute a business as defined in IFRS 3 and if the integrated set of activities, including inputs and processes
acquired, are capable of being conducted and managed as a business and the REIT obtains control of the business.
(ii)
Income taxes
The REIT is a mutual fund trust and a real estate investment trust as defined in the Income Tax Act (Canada). The REIT is not liable
to pay Canadian income taxes provided that its taxable income is fully distributed to Unitholders each year. The REIT is a real estate
investment trust if it meets the prescribed conditions under the Income Tax Act (Canada) relating to the Real Estate Investment
Trust conditions. The REIT uses judgment in reviewing the Real Estate Investment Trust conditions and assessing its interpretation
and application to the REIT’s assets and revenue, and it has determined that it qualifies as a real estate investment trust for the
current period.
(i)
Interest in joint operations
The REIT assesses whether an arrangement should be accounted for as a joint operation or a joint venture under IFRS 11, Joint
Arrangements. This assessment requires Management to make judgments on whether the REIT's rights and obligations arising
from the arrangement constitute a joint operation or a joint venture.
Critical Accounting Estimates and Assumptions
The REIT makes estimates and assumptions that affect the carrying amounts of assets and liabilities and the reported amount of
income for the period. Actual results could differ from estimates. The estimates and assumptions that the REIT considers critical
include the valuation of investment properties. In applying the REIT's policy with respect to investment properties, estimates and
assumptions are required to determine the valuation of the properties under the fair value model.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
30 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Risks and Uncertainties
The REIT faces a variety of diverse risks, many of which are inherent in the business conducted by the REIT. They include the
following:
Real Estate Industry Risk
Real estate investments are generally subject to varying degrees of risk depending on the nature of the property. These risks include
changes in general economic conditions (such as the availability and cost of mortgage funds), local conditions (such as an oversupply
of space or a reduction in demand for real estate in the area), government regulations (such as new or revised residential tenant
legislation), the attractiveness of the properties to tenants, competition from others with available space and the ability of the
owner to provide adequate maintenance at an economic cost. The performance of the economy in each of the areas in which the
REIT’s properties are located, including the financial results and labour decisions of major local employers, can have an impact on
revenues from the properties and their underlying values.
An investment in real estate is relatively illiquid, with the degree of liquidity generally fluctuating in relation to demand for and
the perceived desirability of such investments. Such illiquidity may limit the REIT’s ability to vary its Portfolio promptly in response
to changing economic, investment or other conditions. If it were necessary to accelerate the liquidation of the REIT's real property
investments, the proceeds to the REIT might be significantly less than the aggregate carrying or net asset value of its properties.
The REIT’s exposure to general risks associated with real estate investments is mitigated by its geographic diversification.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges, must be made regardless of whether or not a property is producing sufficient income to service these expenses. The REIT’s
properties are subject to mortgages, which require significant debt service payments. If the REIT were unable to meet mortgage
payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure or of sale.
Many of the REIT’s properties were constructed in the 1960’s and 1970’s and require ongoing capital expenditures, the amount
and timing of which is difficult to predict. These expenditures could exceed the REIT’s existing reserve estimates which could have
a material adverse effect upon distributable income.
The nature of the REIT’s business is such that refurbishment and structural repairs are required periodically, in addition to regular
on-going maintenance.
Competition for Real Property Investments
The REIT competes for suitable real property investments with a variety of investors (both Canadian and foreign) that are presently
seeking, or that may seek in the future, real property investments similar to those desired by the REIT. Many of these investors will
have greater financial resources than those of the REIT. An increase in the availability of investment funds, and an increase in
interest of real property investments, would tend to increase competition for real property investments, thereby increasing purchase
prices and reducing yields therefrom. In addition, the REIT may require additional financing to complete future real property
acquisitions, which may not be available on terms acceptable to the REIT.
Property Acquisition Risk
The REIT’s business plan includes, among other things, growth through identifying suitable acquisition and/or development
opportunities, pursuing such opportunities, consummating acquisitions and leasing acquired properties. The acquisition of
properties entails general risks associated with any real estate investment, including the risk that the investments will fail to perform
in accordance with expectations, that the properties will not achieve anticipated occupancy levels and that estimates of the costs
of improvements to bring an acquired property up to standards established for the intended market position for that property may
prove inaccurate. If the REIT is unable to make accretive acquisitions or otherwise manage its growth effectively, it could adversely
impact the REIT’s financial position and financial performance and decrease the amount of cash available for distribution. There
can be no assurance as to the pace of growth through property acquisitions or that the REIT will be able to acquire assets on an
accretive basis and, as such, there can be no assurance that distributions to Unitholders will increase in the future.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
31 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Current Economic Environment
The REIT is subject to risks involving the economy in general, including inflation, deflation or stagflation, unemployment, geopolitical
issues and a local, regional, national or international outbreak of a contagious disease, including coronavirus. Poor economic
conditions could adversely affect the REIT’s ability to generate revenues, thereby reducing its operating income and earnings. It
could also have an adverse impact on the ability of the REIT to maintain occupancy rates which could harm the REIT’s financial
condition. In weak economic environments, the REIT’s tenants may be unable to meet their rental payments and other obligations
due to the REIT, which could have a material and adverse effect on the REIT. In addition, fluctuation in interest rates or other
financial market volatility may adversely affect the REIT's ability to refinance existing Indebtedness on its maturity or on terms that
are as favourable as the terms of the existing Indebtedness, which may impact negatively on AFFO, may restrict the availability of
financing for future prospective purchasers of the REIT’s investments and could potentially reduce the value of such investments,
or may adversely affect the ability of the REIT to complete acquisitions on financially desirable terms. With respect to the coronavirus
outbreak, Management is monitoring the situation closely and has proactively raised its level of preparedness planning to adapt
more quickly should risk levels rise. Management has developed a business continuity plan and will continue to monitor and adjust
its plans as the coronavirus outbreak evolves.
Cyber Security Risks
A cyber incident is any adverse event that threatens the confidentiality, integrity or availability of the REIT’s information technology
resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized
access to information systems to disrupt operations, corrupt data or steal confidential information. The REIT’s primary risks that
could directly result from the occurrence of a cyber incident include operational interruption, damage to its reputation, damage
to relationships with its vendors and tenants and disclosure of confidential vendor or tenant information. The REIT has implemented
processes, procedures and controls to detect and mitigate these risks, but these measures, as well as its increased awareness of
a risk of a cyber incident, do not guarantee that its financial results will not be negatively impacted by such an incident.
Changes in Legislation
The REIT is subject to laws and regulations governing the ownership and leasing of real property, zoning, building standards,
landlord/tenant relationships, employment standards, environmental matters, taxes and other matters. It is possible that future
changes in applicable federal, provincial, municipal or common laws or regulations or changes in their enforcement or regulatory
interpretation could result in changes in the legal requirements affecting the REIT (including with retroactive effect). Any changes
in the laws to which the REIT is subject could materially adversely affect the REIT’s rights and title to its assets. It is not possible to
predict whether there will be any further changes in the regulatory regimes to which the REIT is subject or the effect of any such
changes on its investments.
Rent Control Risk
Rent control exists in some provinces in Canada, limiting the percentage of annual rental increases to existing tenants. The REIT is
exposed to the risk of the implementation of, or amendments to, existing legislative rent controls in the markets in which it operates,
which may have an adverse impact on the REIT’s operations. Of the jurisdictions in which the REIT currently operates, Ontario and
Quebec have rent controls.
Utility and Property Tax Risk
Utility and property tax risk relates to the potential loss the REIT may experience as a result of higher commodity prices as well as
its exposure to significant increases in property taxes. Over the past few years, property taxes have increased as a result of re-
valuations of municipal properties and their adherent tax rates. For the REIT, these re-valuations have resulted in significant increases
in some property assessments. Utility expenses, mainly consisting of natural gas and electricity service charges, have been subject
to considerable price fluctuations over the past several years. Any significant increase in these resource costs that the REIT cannot
pass on to the tenant may have a negative material impact on the REIT.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
32 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Renovation and Development Risk
There is a risk that renovations or developments undertaken by the REIT will exceed original cost estimates or will experience
unforeseen delays and that renovated or new suites may not lease in the anticipated timeframe or at anticipated rents. During
suite renovations, suites are unavailable for occupancy and do not generate income.
Appraisals of Properties
An appraisal is an estimate of market value and caution should be used in evaluating data with respect to appraisals. It is a measure
of value based on information gathered in the investigation, appraisal techniques employed and reasoning both quantitative and
qualitative, leading to an opinion of value. The analysis, opinions and conclusions in an appraisal are typically developed based on,
and in conformity with, or interpretation of the guidelines and recommendations set forth in the Canadian Uniform Standards of
Appraisal Practice. Appraisals are based on various assumptions of future expectations of property performance and while the
appraiser’s internal forecast of net income for the properties appraised are considered to be reasonable at that time, some of the
assumptions may not materialize or may differ materially from actual experience in the future.
Environmental Risk
As an owner of real estate, the REIT is subject to federal, provincial and municipal environmental regulations. These regulations
may require the REIT to fund the costs of removal and remediation of certain hazardous substances on its properties or releases
from its properties. The failure to remediate such properties, if any, could adversely affect the REIT’s ability to borrow using the
property as collateral or to sell the real estate. The REIT is not aware of any material non-compliance with environmental laws at
any of its properties nor is it currently aware of any environmental condition with respect to any properties that it believes would
involve material expenditures by the REIT. The REIT has made, and will continue to make, the necessary capital expenditures to
comply with environmental laws and regulations. The REIT conducts due diligence on all properties prior to acquisition and this
process includes independent expert assessment of environmental risk for each property. It is the REIT's policy to obtain a Phase
I environmental site assessment conducted by a qualified environmental consultant as a condition of acquiring any additional
property. See "Investment Guidelines and Operating Policies - Operating Policies".
Environmental laws and regulations can change rapidly, and the REIT may be subject to more stringent environmental laws and
regulations in the future.
Climate-Related RIsk
The REIT's properties may be impacted by climate-related events. Among the most significant of those risks is the risk of flooding,
including flash flooding. Depending on the severity, these events could cause significant damage to the REIT's properties, interrupt
normal operations and threaten the safety of tenants. The REIT's ability to generate revenue from impacted properties may also
be significantly impaired.
Climate-related events also may negatively impact certain costs of operation of the REIT's properties, including the cost of utility
consumption due to abnormally hot or cold temperatures and the cost of snow removal. More generally, the increase in catastrophic
losses worldwide from climate-related events has resulted in significant payouts by property insurers. This has resulted in a
significant increases in property insurance premiums generally, including the property insurance premiums payable by the REIT.
There is a risk of insurers being required to make payments on account of future climate-related catastrophic losses, which may
result in further increases in the property insurance premiums payable by the REIT.
Joint Venture Risk
The REIT participates in co-ownerships for three of its properties and may participate in other co-ownerships or partnerships in
the future. There is a risk that the co-owners or partners may fail to fund their share of capital contributions or have economic or
business interests or goals that are different from or inconsistent with those of the REIT. Disputes with the co-owners or partners
may negatively affect the operations of and returns from co-owned or partnership properties, or give rise to an obligation to
purchase the interest of the co-owner or partner or to sell the REIT's interest to the co-owner or partner at a time or on terms that
may adversely impact the REIT’s financial position and financial performance.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
33 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Increased Supply Risk
Each segment of the real estate business is competitive. Numerous other residential developers and apartment owners compete
in seeking tenants. Although the REIT’s strategy is to own multi-residential properties in desirable locations in each market in which
it operates, some of the properties of the REIT’s competitors may be newer, better located or better capitalized. The existence of
alternative housing could have a material adverse effect on the REIT’s ability to lease space in its properties and on the rents charged
or concessions granted, and could adversely affect the REIT’s revenues and its ability to meet its obligations.
General Litigation Risks
In the ordinary course of the REIT’s operations, whether directly or indirectly, it may become involved in, named as a party to or
the subject of various legal proceedings, including regulatory proceedings, tax proceedings and legal actions relating to personal
injuries, property damage, property taxes, land rights, the environment and contract disputes. The outcome with respect to
outstanding, pending or future proceedings cannot be predicted with certainty and may be determined in a manner adverse to
the REIT and as a result, could have a material adverse effect on the REIT’s assets, liabilities, business, financial condition and
financial performance. Even if the REIT prevails in any such legal proceedings, the proceedings could be costly and time-consuming
and may divert the attention of management and key personnel from the REIT’s business operations.
General Uninsured Losses
The REIT carries comprehensive general liability, fire, flood, extended coverage and rental loss insurance with policy specifications,
limits and deductibles customarily carried for similar properties. The REIT will continue to procure insurance for such risks, subject
to certain standard policy limits and deductibles and will continue to carry such insurance if it is economical to do so. There are,
however, certain types of risks (generally of a catastrophic nature such as war or environmental contamination), which are either
uninsurable or not economically insurable. Should an uninsured or underinsured loss occur, the REIT could lose its investment in,
and anticipated profits and cash flows from, one or more of its properties, and would continue to be obligated to repay any recourse
mortgage indebtedness on such properties. There is a risk that any significant increase in insurance costs will impact negatively
upon the profitability of the REIT.
Key Personnel
The REIT's executive and other senior officers have a significant role in the REIT's success and oversee the execution of the REIT's
strategy. The REIT's ability to retain its management team or attract suitable replacements should any members of management
leave is dependent on, among other things, the competitive nature of the employment market. The REIT has experienced departures
of key professionals in the past and may do so in the future, and it cannot predict the impact that any such departures may have
on its ability to achieve its objectives. The loss of services from key members of the management team or a limitation on their
availability could adversely impact the REIT's financial condition and cash flow. The REIT mitigates key personnel risk through
succession planning, but does not maintain key personnel insurance.
Tax-Related Risks
i) Mutual Fund Trust Status - The REIT intends to qualify at all relevant times as a “mutual fund trust” for purposes of the
Tax Act. There can be no assurance that Canadian federal income tax laws and the administrative policies and practices
of the CRA respecting the treatment of mutual fund trusts will not be changed in a manner that adversely affects the
Unitholders.
ii)
The REIT Exception - Canadian tax legislation relating to the federal income taxation of Specified Investment Flow Through
trusts or partnerships provide that certain distributions from a SIFT will not be deductible in computing the SIFT’s taxable
income and that the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general
tax rate applicable to Canadian corporations. However, distributions paid by a SIFT as return of capital should generally
not be subject to tax. Under the SIFT rules, the taxation regime will not apply to a real estate investment trust that meets
prescribed conditions relating to the nature of its assets and revenue (the “REIT Exception”). The REIT Exception is
comprised of a number of technical tests and the determination as to whether the REIT qualifies for the REIT Exception
in any particular taxation year can only be made with certainty at the end of that taxation year. The REIT expects to qualify
for the REIT Exception in 2019 and subsequent taxation years, such that it will be exempt from the SIFT rules. However,
no assurances can be given that the REIT will satisfy the REIT Exception in any particular year. If the SIFT rules apply to
the REIT, they may adversely affect the marketability of the Units, the amount of cash available for distributions and the
after-tax return to investors.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
34 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
iii) Non-Resident Ownership - Under current law, a trust may lose its status under the Tax Act as a mutual fund trust if it can
reasonably be considered that the trust was established or is maintained primarily for the benefit of Non-Residents,
except in limited circumstances. Accordingly, the DOT provides that Non-Residents may not be the beneficial owners of
more than 49% of the Units (determined on a basic or a fully-diluted basis). The Trustees also have various powers that
can be used for the purpose of monitoring and controlling the extent of Non-Resident ownership of the Units.
iv)
v)
Tax-Basis of Acquired Properties - The Partnership has acquired, and may from time to time in the future acquire, certain
properties on a fully or partially tax-deferred basis, such that the tax cost of these properties will be less than their fair
market value. If one or more of such properties are disposed of, the gain realized by the Partnership for tax purposes
(including any income inclusions arising from the recapture of previously claimed CCA on depreciable property) will be
in excess of that which it would have realized if it had acquired the properties at a tax cost equal to their fair market
values. For the purpose of claiming CCA, the UCC of such properties acquired by the Partnership will be equal to the
amounts jointly elected by the Partnership and the transferor on the tax-deferred acquisition of such property. The UCC
of such property will be less than the fair market value of such property. As a result, the CCA that the Partnership may
claim in respect of such properties will be less than it would have been if such properties had been acquired with a tax
cost basis equal to their fair market values.
Eligibility for Investment - The Tax Act imposes penalties for the acquisition or holding of investments that are not “qualified
investments” within the meaning of the Tax Act by registered retirement savings plans, registered education savings
plans, registered retirement income funds, deferred profit sharing plans, registered disability savings plans or tax-free
savings accounts (collectively, “Exempt Plans”). Although the REIT will endeavour to ensure that the Units continue to
be qualified investments for Exempt Plans, any property distributed to a Unitholder on an in specie redemption of Units
may not be qualified investments under the Tax Act.
vi) Non-Residents of Canada - The Tax Act may impose additional withholding or other taxes on distributions made by the
REIT to Unitholders who are Non-Residents. These taxes and any reduction thereof under a tax treaty between Canada
and another country may change from time to time. The tax consequences under the Tax Act to Non- Residents may be
more adverse than the consequences to other Unitholders. Non-Resident Unitholders should consult their own tax
advisors.
vii) General Taxation - There can be no assurance that Canadian federal or provincial tax laws, the judicial interpretation
thereof, or the administrative and assessing practices and policies of the CRA, the Department of Finance (Canada) and
any other tax authority or tax policy agency will not be changed in a manner that adversely affects the REIT, its affiliates
or Unitholders, or that any such taxing authority will not challenge tax positions adopted by the REIT and its affiliates.
Any such change or challenge could increase the amount of tax payable by the REIT or its affiliates or could otherwise
adversely affect Unitholders by reducing the amount available to pay distributions or changing the tax treatment
applicable to Unitholders in respect of such distributions.
Financial Risk Management
The REIT's activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk.
Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk consists of interest rate risk, currency risk and other price risk.
(i)
Interest rate risk
As the REIT’s interest-bearing assets mainly comprise of fixed rate instruments, changes in market interest rates do not have
any significant direct effect on the REIT’s income.
The majority of the REIT's financial liabilities are fixed rate instruments. The REIT faces interest rate risk on its fixed rate debt
due to the expected requirement to refinance such debt in the year of maturity or shortly thereafter. In addition, there is
interest rate risk associated with the REIT's variable rate financial liabilities.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
35 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
The REIT manages interest rate risk by structuring its financings to stagger the maturities of its debt, thereby mitigating its
exposure to interest rate and other credit market fluctuations.
For the portion of the REIT’s financial liabilities that is floating rate instruments, from time to time the REIT may enter into
interest rate swap contracts or other financial instruments to modify the interest rate profile of its outstanding debt without
an exchange of the underlying principal amount.
As at December 31, 2019, the REIT has a variable rate credit facility of $200,000 (December 31, 2018 - $150,000) with an
outstanding balance of $91,009 (December 31, 2018 - $35,925). A 1% change in prevailing interest rates would change
annualized interest charges incurred by $910 (December 31, 2018 - $359).
(ii) Currency risk
The REIT’s financial statement presentation currency is Canadian dollars. Operations are located in Canada and the REIT has
limited operational transactions in foreign-denominated currencies. As such, the REIT has no significant exposure to currency
risk.
(iii) Other price risk
Other price risk is the risk of variability in fair value due to movements in equity prices or other market prices such as commodity
prices and credit spreads.
The REIT is exposed to other price risk on its Class B LP Units. A 1% change in prevailing market price of the Units as at
December 31, 2019 would have a $5,271 (December 31, 2018 - $3,859) change in fair value of the Class B LP Units.
Credit Risk
Credit risk is the risk that tenants and/or debtors may experience financial difficulty and be unable to fulfill their lease commitments
or loan repayments. An allowance for impairment is taken for all expected credit losses.
The REIT’s risk of credit loss from tenants experiencing financial difficulties is mitigated through diversification. The REIT’s residential
rental business is carried on in the Toronto, Montreal, Ottawa, Calgary and Edmonton regions. The nature of this business involves
a high volume of tenants with individually small monthly rent amounts. The REIT monitors the collection of residential rent
receivables on a regular basis with strictly followed procedures designed to minimize credit loss in cases of non-payment.
The REIT is also exposed to credit risk, relating to the loan advanced to an affiliate of MPI for the development of Fifth and Bank,
in the event that the borrower defaults on the repayment of amounts owing to the REIT. Management mitigates this risk by ensuring
adequate security has been provided.
Liquidity Risk
Liquidity risk is the risk that the REIT will encounter difficulty in meeting obligations associated with financial liabilities that are
settled by delivering cash or another financial asset.
The REIT mitigates liquidity risk by staggering the maturity dates of its borrowing, maintaining borrowing relationships with various
lenders, proactively renegotiating expiring credit agreements well in advance of the maturity date and by maintaining sufficient
availability on its credit facility.
The REIT has a committed credit facility for working capital requirements, acquisitions and for general corporate purposes. The
committed credit facility consists of the following:
As at
Committed
Available
Utilized
December 31, 2019
December 31, 2018
$
200,000 $
108,991
91,009
150,000
114,075
35,925
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
36 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
An analysis of the contractual cash flows associated with the REIT's material financial liabilities is set out below:
Mortgages
Credit facility
$
Class C LP Units
Interest obligation
Tenant rental deposits
Due to related parties
Accounts payable and accrued
liabilities
2020
21,227 $
—
21,227
5,178
25,193
8,676
1,838
2021
31,271 $
91,009
122,280
5,341
22,324
—
—
2022
95,750 $
—
95,750
5,510
19,261
—
—
2023
54,908 $
—
54,908
50,234
15,831
—
—
2024 and
thereafter
284,720 $
—
284,720
156,439
46,879
36
—
Total
487,876
91,009
578,885
222,702
129,488
8,712
1,838
19,744
184
82
8
—
20,018
$
81,856 $
150,129 $
120,603 $
120,981 $
488,074 $
961,643
The contractual cash flows do not include any unamortized mark-to-market adjustments or unamortized deferred financing costs.
Related Party Transactions
In the normal course of operations, the REIT enters into various transactions with related parties. In addition to the related
party transactions disclosed elsewhere in this Management's Discussion and Analysis, related party transactions include:
Administrative support agreement
On July 3, 2018, the REIT and MPI entered into a five year renewable agreement that provides the REIT with certain advisory,
transaction and support services, including clerical and administrative support, operational support for the administration of day-
to-day activities of the REIT and office space (the Administrative Support Agreement). These services are provided on a cost recovery
basis, subject to a maximum during the initial five year term, for all general and administrative expenses, excluding public company
costs, of 32 bps of the Gross Book Value.
For the year ended December 31, 2019, the REIT incurred $848 (December 31, 2018 - $282) for services rendered under the ASA.
Loan receivable from related party
The REIT committed to advance up to $30,000 to an affiliate of MPI to support its redevelopment of Fifth and Bank. The loan bears
interest at 6% per annum, matures on March 31, 2022 and is subordinate to senior construction financing. Both the principal and
interest are due on maturity. In connection with this financing, the REIT will have the exclusive option to purchase the property
upon stabilization at 95% of the fair market value.
The following table summarizes the activity of the loan receivable:
Balance, January 1, 2019
Cash flows
Advances
Non-cash movement
Accrued interest
Balance, December 31, 2019
$
$
$
—
19,727
195
19,922
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
37 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Due to related parties
Amounts due to related parties at December 31, 2019 includes $732 and $588 (December 31, 2018 - $713 and $602) relating to
distributions payable to limited partnerships wholly-owned by MPI on Class B LP Units and Class C LP Units respectively. Additionally,
amounts due to MPI include $288 (December 31, 2018 - $1,643) for working capital, $103 (December 31, 2018 - $nil) for distributions
on Class B LP Units, $33 (December 31, 2018 - $nil) for distributions on Units, $nil (December 31, 2018 - $1,049) to reimburse
transaction costs and $94 (December 31, 2018 - $282) in connection with the ASA.
Revenue and expenses
•
•
•
•
•
•
Included in rental revenue for the year ended December 31, 2019 is $842 (December 31, 2018 - $229) of revenue from MPI
and its affiliates for rent paid for office space, furnished suites, parking and other revenue at certain REIT properties.
Included in property operating expenses for the year ended December 31, 2019 is $954 (December 31, 2018 - $nil) paid to
MPI and its affiliates.
For the year ended December 31, 2019, compensation to key management personnel includes $768 (December 31, 2018 -
$296) paid to executives, Unit-based compensation expense of $291 (December 31, 2018 - $139) for executives and Unit-
based compensation expense for the grant of Deferred Units to Trustees in lieu of annual retainer and meeting fees of $474
(December 31, 2018 - $306), respectively. Additional compensation to key management personnel for services provided to
the REIT was paid by MPI and its affiliate.
Included in finance costs for the year ended December 31, 2019 are distributions on Class B LP Units of $9,195 (December
31, 2018 - $4,229), paid or payable to MPI and a limited partnership wholly-owned by MPI.
Included in finance costs for the year ended December 31, 2019 are distributions on Class C LP Units of $7,066 (December
31, 2018 - $3,606), paid or payable to a limited partnership wholly-owned by MPI.
For the year ended December 31, 2019 the REIT reimbursed $312 (December 31, 2018 - $nil) to MPI for costs paid on behalf
of the REIT.
Distributions
•
•
For the year ended December 31, 2019, distributions of $5,019 (December 31, 2018 - $2,329) were made to a limited
partnership wholly-owned by MPI in order to repay principal on Class C LP Units.
For the year ended December 31, 2019, distributions on Units to MPI of $131 (December 31, 2018 - $nil) were declared and
recorded as a reduction to Unitholders' equity.
Property acquisitions
•
•
On May 1, 2019, the REIT acquired MPI's 50% ownership interest in Leslie York Mills in Toronto, Ontario for a purchase price
of $75,050. In connection with the acquisition, the REIT assumed a mortgage of $23,392.
On August 1, 2019, the REIT acquired MPI's 40% ownership interest in High Park Village in Toronto, Ontario for a purchase
price of $131,214. In connection with the acquisition, the REIT assumed a mortgage of $39,480 which bears interest at one
month bankers' acceptance plus 185 bps and matures on April 1, 2026. In addition, the REIT assumed an interest rate swap
to receive variable interest based on one month bankers' acceptance plus 185 bps and pay fixed interest at 3.38%. The purchase
price was partially satisfied by the issuance of 2,806,122 Class B LP Units to MPI for $55,000.
Contingencies and Commitments
The REIT is subject to claims and legal actions that arise in the ordinary course of business. It is the opinion of Management that
any ultimate liability that may arise from such matters would not have a significant adverse effect on the consolidated financial
statements of the REIT. The contingencies and commitments of the REIT are set out in Note 18 of the consolidated financial
statements for the year ended December 31, 2019.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
38 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Adoption of Accounting Standards
The REIT adopted amended standard IFRS 16, Leases, effective January 1, 2019 using the modified retrospective approach. The
REIT has determined that the adoption of this standard did not have a material impact on the REIT's consolidated financial statements
and did not result in changes to opening equity as at January 1, 2019.
Future Changes in Accounting Standards
The following accounting standards under IFRS have been issued or revised, however are not yet effective and as such have not
been applied by the REIT:
On October 22, 2018, the IASB issued amendments to IFRS 3, Business Combinations that seek to clarify whether a transaction
results in an asset acquisition or a business combination. The amendments apply to businesses acquired in annual reporting periods
beginning on or after January 1, 2020. Earlier application is permitted.
The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition
if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable
assets. If a preparer chooses not to apply the concentration test, or the test is failed, then the assessment focuses on the existence
of a substantive process.
The REIT intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2020, when the standard
becomes effective. The REIT is assessing the potential impact of the amendments, however, does not expect them to have a material
impact on the REIT's consolidated financial statements.
There are no other changes in accounting standards or interpretations under IFRS that have been adopted but are not yet effective
that would have a material impact on the REIT's consolidated financial statements.
Disclosure Controls and Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining a system of disclosure controls and procedures ("DC&P") to provide
reasonable assurance that all material information relating to the REIT that is required to be publicly disclosed is recorded, processed,
summarized and reported on a timely basis and within the time period specified in securities legislation.
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting ("ICFR") to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports for external
purposes in accordance with IFRS. In designing such controls, it should be recognized that due to inherent limitations, any controls,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control
objectives and may not prevent or detect misstatements. Additionally, Management is required to use judgment in evaluating
controls and procedures.
In accordance with the provisions of National Instrument 52-109 Certification of Disclosures in Issuers' Annual and Interim Filings,
the REIT’s Management, including the Chief Executive Officer and the Chief Financial Officer, have limited the scope of their
assessment of the REIT’s DC&P and ICFR to exclude controls, policies and procedures of three businesses acquired throughout the
year: Rockhill acquired on May 7, 2019 and Le 4300 and Haddon Hall acquired on November 20, 2019.
For the year ended and as at December 31, 2019, Rockhill, Le 4300 and Haddon Hall accounts for approximately 6.9% of revenue
and 20.7% of investment properties.
The scope limitation is primarily based on the time required to assess the acquired businesses existing DC&P and ICFR effectiveness.
The assessment of the acquired businesses' design effectiveness of DC&P and ICFR, and the implementation of any changes
determined by Management to be desirable, is expected to be completed by the first quarter of 2020. Further details related to
the acquisition are disclosed in Note 5, "Acquisition of Investment Properties", in the REIT’s consolidated financial statements for
the year ended December 31, 2019.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
39 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Without contradiction of the scope limitation of Management’s assessment, it is Management's belief, after evaluating the
effectiveness of the REIT’s DC&P as of December 31, 2019, that the REIT’s DC&P were effective to ensure that material information
relating to the REIT would have been known to them and that information required to be disclosed by the REIT is recorded,
processed, summarized, and reported on a timely basis and within the time period specified in securities legislation. Similarly,
without contradiction of the scope limitation of Management's assessment, after evaluating the effectiveness of the REIT’s ICFR
as of December 31, 2019, it is Management's belief that the REIT’s ICFR provide reasonable assurance regarding the reliability of
financial reporting for external purposes in accordance with IFRS. There were no significant changes during the period October 1,
2019 to December 31, 2019 to the design of the REIT’s ICFR that has materially affected, or is reasonably likely to materially affect,
the REIT’s ICFR.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
40 Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts and other non-financial data)
Section VI - Supplemental Information
Property Portfolio
Property
Toronto
High Park Village
1
Leslie York Mills
2
3
Richgrove
4 Martin Grove
5 Minto Yorkville1
Roehampton1
6
Parkwood Hills Garden Homes & Townhomes
Aventura
Ottawa
7 Minto one80five1
8
9
10 Huron
11 Seneca
12 Castleview
13 Skyline Garden Homes, Maisonettes & Walkups
14 The Carlisle
15 Castle Hill
16 Grenadier
17 Tanglewood
18 Eleanor
19 Frontenac
20 Stratford
Montreal
21 Rockhill1
22 Le 4300
23 Haddon Hall
Edmonton
24 The Lancaster House
25 York House
26 Hi-Level Place
Calgary
27 The Quarters
28 The Laurier1
29 Kaleidoscope
Portfolio Total
Total Suites
REIT Ownership
Interest
Effective Ownership
Interest (Suites)
750
409
258
237
181
148
1,983
417
393
354
251
251
241
227²
191
176
158
122
117
104
59
3,061
1,004
318
210
1,532
98
92
64
254
199
144
70
413
7,243
40%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
300
205
258
237
181
148
1,329
417
393
354
251
251
241
227
191
176
158
122
117
104
59
3,061
502
318
210
1,030
98
92
64
254
199
144
70
413
6,087
1 Suite counts for Minto Yorkville, Roehampton, Minto one80five, Rockhill and The Laurier include furnished suites, representing approximately
14% of the total suites at these properties.
2 Excludes 32 Maisonettes damaged by fire in March 2017.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
41 Independent Auditors' Report
To the Unitholders of Minto Apartment Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of Minto Apartment Real Estate Investment Trust (the “Entity”), which
comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2019 and December 31, 2018
the consolidated statements of net income and comprehensive income for the year ended December 31, 2019 and for
the period from April 24, 2018 (date of formation) to December 31, 2018
the consolidated statements of changes in unitholders’ equity for the year ended December 31, 2019 and for the period
from April 24, 2018 (date of formation) to December 31, 2018
the consolidated statements of cash flows for the year ended December 31, 2019 and for the period from April 24, 2018
(date of formation) to December 31, 2018
and notes to the consolidated financial statements, including a summary of significant accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position
of the Entity as at December 31, 2019 and December 31, 2018, and its consolidated financial performance and its consolidated
cash flows for the year ended December 31, 2019 and for the period from April 24, 2018 (date of formation) to December 31, 2018
in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’
report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions; and
the information, other than the financial statements and the auditors’ report thereon, included in a document entitled
“2019 Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit and remain alert for indications that the other information appears to be materially misstated.
We have obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions and the 2019 Annual Report as of the date of the auditors’ report. If, based on the work we have performed on this
other information, we conclude that there is a material misstatement of this other information, we are required to report that fact
in the auditors’ report.
We have nothing to report in this regard.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
42 Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International
Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit.
We also:
•
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.
Provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Thomas Rothfischer.
Toronto, Canada
March 10, 2020
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
43 Minto Apartment Real Estate Investment Trust
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Assets
Investment properties
Loan receivable from related party
Prepaid expenses and other assets
Resident and other receivables
Cash
Liabilities and Unitholders' Equity
Liabilities
Class B LP Units
Class C LP Units
Mortgages
Credit facility
Tenant rental deposits
Due to related parties
Accounts payable and accrued liabilities
Unitholders' equity
Contingencies and commitments
See accompanying notes to the consolidated financial statements.
Note
December 31, 2019
December 31, 2018
4
12
7
8
9
10
11
11
12
13
18
$
$
$
$
$
2,016,328 $
19,922
10,295
1,827
1,928
2,050,300 $
527,104 $
225,537
489,307
91,009
8,712
1,838
20,018
1,363,525 $
686,775
1,197,811
—
7,233
989
892
1,206,925
385,899
231,037
275,601
35,925
6,594
4,289
9,328
948,673
258,252
2,050,300 $
1,206,925
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
44 Minto Apartment Real Estate Investment Trust
Consolidated Statements of Net Income and Comprehensive Income
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars)
Revenue from investment properties
Property operating expenses
Property operating costs
Property taxes
Utilities
Property operating income
Other expenses (income)
General and administrative
Finance costs - operations
Fair value gain on investment properties
Fair value loss on Class B LP Units
Fair value gain on interest rate swap
Fair value loss on Unit-based compensation
Fees and other income
Bargain purchase gain
Year ended
December 31, 2019
Period from April 24,
2018 to December 31,
2018 (Note 1)
104,438 $
42,475
Note
16
$
19,755
11,016
8,370
39,141
65,297
5,607
30,132
(93,216)
104,241
(879)
325
(879)
—
45,331
17
4
9, 17
7, 17
22
3
8,257
4,528
3,580
16,365
26,110
2,267
11,875
(40,048)
81,713
—
76
—
(79,163)
(23,280)
49,390
Net income and comprehensive income
$
19,966 $
See accompanying notes to the consolidated financial statements.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
4545 Minto Apartment Real Estate Investment Trust
Consolidated Statements of Changes in Unitholders' Equity
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars)
Balance, April 24, 2018
Units issued, net of issue costs
Net income and comprehensive income
Distributions
Balance, December 31, 2018
Units issued, net of issue costs
Net income and comprehensive income
Distributions
1
14
14
14
14
Note
Units
Distributions
$
— $
212,078
—
—
— $
—
—
(3,216)
Retained
earnings
— $
—
49,390
—
Total
—
212,078
49,390
(3,216)
$
212,078 $
(3,216) $
49,390 $
258,252
419,356
—
—
—
—
(10,799)
—
19,966
—
419,356
19,966
(10,799)
Balance, December 31, 2019
$
631,434 $
(14,015) $
69,356 $
686,775
See accompanying notes to the consolidated financial statements.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
46 Minto Apartment Real Estate Investment Trust
Consolidated Statements of Cash Flows
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars)
Note
Year ended
December 31, 2019
Period from April 24,
2018 to December 31,
2018 (Note 1)
Cash provided by (used in):
Operating activities
Net income
Adjustments for:
Finance costs - operations
Fair value gain on investment properties
Fair value loss on Class B LP Units
Fair value gain on interest rate swap
Fair value loss on Unit-based compensation
Bargain purchase gain
Change in non-cash working capital
Cash provided by operating activities
Financing activities
Proceeds from issuance of Units, net of issue costs
Net proceeds from mortgage financing
CMHC premiums paid
Financing costs
Principal repayments on mortgages
Loan advanced to related party
Net proceeds from credit facility
Repayment of acquisition note
Repayment of unsecured promissory notes
Redemption of Class B LP Units
Distributions on Class B LP Units
Distributions on Class C LP Units, used to repay principal
Distribution on Units
Interest paid
Cash provided by (used in) financing activities
Investing activities
Acquisition of investment properties
Capital additions to investment properties
Cash balance transferred on acquisition of Initial Portfolio
Cash used in investing activities
Change in cash during the period
Cash, beginning of the period
Cash, end of the period
See accompanying notes to the consolidated financial statements.
$
19,966 $
17
4
9, 17
7, 17
22
3
21
11
11
11
12
11
3
3, 12
9
10
5
3
$
30,132
(93,216)
104,241
(879)
325
—
(6,739)
53,830
399,436
158,360
(2,971)
(322)
(6,930)
(19,727)
55,084
—
—
—
(9,073)
(5,019)
(10,011)
(20,869)
537,958
(571,573)
(19,179)
—
(590,752)
1,036
892
1,928 $
49,390
11,875
(40,048)
81,713
—
76
(79,163)
5,320
29,163
212,877
26,024
(1,566)
(11)
(2,206)
—
35,925
(183,288)
(54,150)
(28,277)
(3,516)
(2,329)
(2,674)
(7,492)
(10,683)
(7,465)
(12,223)
2,100
(17,588)
892
—
892
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
47 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
1. Description of the entity
Minto Apartment Real Estate Investment Trust (the "REIT") is an unincorporated, open-ended real estate investment trust
established pursuant to a Declaration of Trust dated April 24, 2018, which was amended and restated on June 27, 2018, and further
amended by the First Amendment to the Amended and Restated Declaration of Trust on July 10, 2018. The REIT was formed to
own and operate a portfolio of income-producing multi-residential rental properties located in Canada.
The REIT was established under the laws of the Province of Ontario. The principal and registered office of the REIT is 200-180 Kent
Street, Ottawa, Ontario.
The REIT's operations commenced on July 2, 2018 when the REIT indirectly acquired a portfolio of 22 multi-residential rental
properties (the "Initial Portfolio"). The Initial Portfolio is held by Minto Apartment Limited Partnership (the "Partnership"), which
is consolidated by the REIT. The REIT had no operations for the period from April 24, 2018 (date of formation) to July 1, 2018, and
as such the comparative results presented for the period from April 24, 2018 (date of formation) to December 31, 2018 consist of
the results for the 183-day period from July 2, 2018 to December 31, 2018.
At December 31, 2019, the REIT's portfolio consists of interests in 29 (December 31, 2018 - 23) multi-residential rental properties,
including three mixed-use residential apartment and commercial buildings, all of which are held by the Partnership.
2. Significant accounting policies
(a) Basis of presentation and measurement
These consolidated financial statements have been prepared on a historical cost basis, except for investment properties, Class
B LP Units, Unit based compensation and interest rate swap, which have been measured at fair value. The consolidated
financial statements have been presented in Canadian dollars, which is the REIT's functional currency.
(b) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies described herein.
These consolidated financial statements were approved by the Board of Trustees of the REIT and authorized for issuance on
March 10, 2020.
(c) Basis of consolidation
The consolidated financial statements include the financial statements of the REIT and its subsidiaries, including the
Partnership. Subsidiaries are consolidated from the date of acquisition, being the date on which the REIT obtains control, and
continue to be consolidated until the date when control is lost. Control exists when the REIT is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. The accounting policies of subsidiaries have been modified when necessary to align them with the policies adopted
by the REIT. All intra group balances, transactions and unrealized gains and losses are eliminated in full upon consolidation.
(d) Business combinations
At the time of acquisition of property, whether through a controlling share investment or directly, the REIT considers whether
the acquisition represents the acquisition of a business. The REIT accounts for an acquisition as a business combination where
an integrated set of activities is acquired in addition to the property. More specifically, consideration is made of the extent to
which significant processes are acquired. If no significant processes, or only insignificant processes, are acquired, the acquisition
is treated as an asset acquisition rather than a business combination.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
48 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The cost of a business combination is measured at the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed in
a business combination are measured initially at fair value at the date of acquisition. The REIT recognizes assets or liabilities,
if any, resulting from a contingent consideration arrangement at their acquisition date fair value and such amounts form part
of the cost of the business combination.
Subsequent changes in the fair value of contingent consideration arrangements are recognized in the consolidated statements
of net income and comprehensive income. The difference between the purchase price and the fair value of the acquired
identifiable net assets and liabilities is goodwill. On the date of acquisition, positive goodwill is recorded as an asset. A bargain
purchase gain is recognized immediately in the consolidated statements of net income and comprehensive income. The REIT
expenses transaction costs associated with business combinations in the period incurred.
When an acquisition does not meet the criteria for business combination accounting treatment, it is accounted for as an
acquisition of a group of assets and liabilities, the cost of which includes transaction costs that are allocated upon initial
recognition to the assets and liabilities acquired based upon their relative fair values.
Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement
period”, which cannot exceed one year from the acquisition date, about facts and circumstances that existed at the acquisition
date. Subsequent changes in fair value of contingent consideration classified as assets or liabilities that do not qualify as
measurement period adjustments are recognized as a gain or loss in the consolidated statements of net income and
comprehensive income.
(e)
Joint arrangements
The REIT has joint arrangements in and joint control of certain investment properties which it manages. The REIT has assessed
the nature of its joint arrangements and determined them to be joint operations. The REIT accounts for joint operations by
recognizing in relation to its interest its share of revenues, expenses, assets and liabilities, which are included in their respective
captions on the consolidated balance sheets and consolidated statements of net income and comprehensive income. All
balances and effects of transactions between joint operations and the REIT have been eliminated to the extent of its interest
in the joint operations.
(f)
Investment properties
The REIT uses the fair value method to account for real estate classified as investment property. Property that is held for
long term rentals or for capital appreciation or both is classified as investment property. Investment property also includes
property that is being constructed or developed for future use as investment property and land held for future development
to earn rental income. Subsequent capital expenditures are added to the carrying value of the investment properties only
when it is probable that future economic benefits will flow to the property and the cost can be measured reliably. All repairs
and maintenance costs are expensed as incurred.
The acquisition of investment properties is initially measured at cost including directly attributable acquisition costs, except
when acquired through a business combination, where such costs are expensed as incurred. Directly attributable acquisition
costs include professional fees, land transfer taxes and other transaction costs.
After initial recognition, investment properties are carried at fair value, which is determined based on available market evidence
at each reporting date. Gains or losses arising from changes in fair value are included in the consolidated statements of net
income and comprehensive income during the period in which they arise. When an investment property is disposed of, the
gain or loss is determined as the difference between the disposal proceeds, net of selling costs and the carrying amount of
the property and is recognized in the consolidated statements of net income and comprehensive income in the period of
disposal.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
49 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Fair value for residential properties is determined using the direct capitalization approach. Estimated stabilized net operating
income is based on the respective property’s forecasted results, less estimated aggregate future capital expenditures.
Capitalization rates reflect the characteristics, location and market of each property. Fair value is determined based on internal
valuation models incorporating market data and valuations performed by external appraisers.
Fair value for commercial properties is determined using the discounted future cash flow approach over a term of ten years
plus a terminal value. Capitalization rates reflect the characteristics, location and market of each property. Future cash flows
are based on estimated rental revenue from future leases less related estimated future cash outflows. Fair value is determined
based on internal valuation models incorporating market data and valuations performed by external appraisers.
Fair value for land held for development is determined by reference to comparable market prices for similar assets.
(g) Financial instruments
Financial instruments are generally measured at fair value on initial recognition. The classification and measurement of financial
assets consists of the following categories: (i) measured at amortized cost, (ii) fair value through profit and loss ("FVTPL"), and
(iii) fair value through other comprehensive income (‘‘FVTOCI’’). Financial assets classified at amortized cost are measured
using the effective interest method. Financial assets classified as FVTPL are measured at fair value with gains and losses
recognized in the consolidated statements of net income and comprehensive income. Financial assets classified as FVTOCI
are measured at fair value with gains or losses recognized through other comprehensive income, except for gains and losses
pertaining to impairment or foreign exchange recognized through the consolidated statements of net income and
comprehensive income.
The classification and measurement of financial liabilities consists of the following categories: (i) measured at amortized cost
and (ii) FVTPL. Financial liabilities classified at amortized cost are measured using the effective interest method. Financial
liabilities classified as FVTPL are measured at fair value with changes in fair value attributable to changes in the credit risk of
the liability recognized in other comprehensive income, and the remaining amount of change in fair value recognized in the
consolidated statements of net income and comprehensive income.
The REIT has made the following classifications for its financial instruments:
Account
Loan receivable from related party
Restricted cash
Interest rate swap
Resident and other receivables
Cash
Class B LP Units
Class C LP Units
Mortgages
Credit facility
Tenant rental deposits
Due to related parties
Accounts payable and accrued liabilities
Measurement
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
The REIT derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it
transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The REIT
derecognizes a financial liability when, and only when, the REIT's obligations are discharged, canceled or they expire. The
difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is
recognized in the consolidated statements of net income and comprehensive income.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
50 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Transaction costs other than those related to financial instruments classified as FVTPL, which are expensed as incurred, are
capitalized to the carrying amount of the instrument and amortized using the effective interest method. These costs include
interest, amortization of discounts or premiums relating to borrowings, fees and commissions paid to agents, brokers and
advisers and transfer taxes and duties.
Units
Units are redeemable at the holder's option and therefore are considered to be a puttable instrument in accordance with IAS
32, Financial Instruments: Presentation ("IAS 32"). Puttable instruments are required to be accounted for as financial liabilities,
except where certain conditions are met in accordance with IAS 32, in which case the puttable instruments may be presented
as equity. The Units meet the exemption conditions of IAS 32 and are presented as equity.
Units represent a Unitholder's proportionate undivided beneficial interest in the REIT. No Unit has any preference or priority
over another. No Unitholder has or is deemed to have any right of ownership in any of the assets of the REIT. Each Unit confers
the right to one vote at any meeting of Unitholders and to participate pro rata in any distributions and, on liquidation, to a
pro rata share of the residual net assets remaining after preferential claims thereon of debtholders.
The REIT has elected to not report an earnings per unit calculation, as per IAS 33, Earnings Per Share, as the Units meet the
definition of a financial liability under IAS 32.
Unitholders have the right to redeem their Units at the lesser of (i) 90% of the market price of the Units and (ii) 100% of the
closing market price on the redemption date. The redemption price will be satisfied by cash up to a limit of $50 for all
redemptions in a calendar month, which can be waived at the discretion of the Trustees.
Class B LP Units
The Class B LP Units of the Partnership are economically equivalent to Units, receive distributions equal to the distributions
paid on Units and are exchangeable at the holder’s option into Units. One Special Voting Unit in the REIT is issued to the holder
of Class B LP Units for each Class B LP Unit held, which entitles the holder to one vote per Special Voting Unit at any meeting
of the Unitholders. The limited IAS 32 exception for presentation as equity does not extend to the Class B LP Units. As a result,
the Class B LP Units have been classified as financial liabilities and are measured at FVTPL. The fair value of the Class B LP
Units is measured every period by reference to the traded value of the Units, with changes in measurement recorded in the
consolidated statements of net income and comprehensive income. Distributions on the Class B LP Units are recorded as a
finance cost in the consolidated statements of net income and comprehensive income in the period in which the distributions
become payable.
Class C LP Units
The Class C LP Units of the Partnership provide for monthly distributions from the Partnership to the holder of such Class C
LP Units to be paid in priority, subject to certain restrictions, to distributions to holders of the Units and Class B LP Units. Due
to the nature of such distributions, the Class C LP Units have been classified as financial liabilities and are carried at amortized
cost. Distributions on the Class C LP Units consist of principal repayments and interest expense, with principal repayments
reducing the outstanding liability and interest expense recorded in finance costs in the consolidated statements of net income
and comprehensive income in the period in which the distributions become payable.
Derivative financial instruments
The REIT uses derivative financial instruments to manage risks from fluctuations in interest rates. All derivative instruments
are designated and valued at FVTPL in the consolidated financial statements.
Impairment of financial assets
The REIT has adopted the practical expedient to estimate the expected credit loss ("ECL") on resident and other receivables
using a provision matrix based on historical credit loss experience adjusted for current and forecasted future economic
conditions. Resident and other receivables are initially measured at fair value and are subsequently measured at amortized
cost less a provision for impairment.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
51 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The REIT recognizes loss allowances for ECL on the remaining financial assets measured at amortized cost, unfunded loan
commitments and financial guarantee contracts. The REIT applies a three-stage approach to measure allowance for credit
losses. The REIT measures loss allowance at an amount equal to 12 months of expected losses for performing loans if the
credit risk at the reporting date has not increased significantly since initial recognition (Stage 1) and at an amount equal to
lifetime expected losses on performing loans that have experienced a significant increase in credit risk since origination (Stage
2) and at an amount equal to lifetime expected losses which are credit impaired (Stage 3).
(h) Fair value measurement
The REIT measures financial instruments, such as Class B LP Units, interest rate swap and Unit-based compensation, and
non financial assets, such as investment properties, at fair value at each balance sheet date. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date under current market conditions. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the REIT.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability assuming that market participants act in their economic best interests.
A fair value measurement of a non financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset
in its highest and best use.
The REIT uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
•
•
•
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the REIT determines
whether transfers have occurred between levels in the hierarchy by re assessing categorization (based on the lowest level
input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Cash, restricted cash, resident and other receivables, due to related parties, tenant rental deposits and accounts payable and
accrued liabilities are carried at amortized cost, which, due to their short term nature, approximates fair value. Additionally,
the credit facility is carried at amortized cost, which, due to its variable rate, approximates fair value.
The REIT estimates the fair value of its mortgages and Class C LP Units based on the rates that could be obtained for similar
debt instruments with similar terms and maturities. Their fair value qualifies as level 2 in the fair value hierarchy above.
The fair value of Class B LP Units and Unit-based compensation is measured every period by reference to the traded value of
Units and is considered Level 2 in the fair value hierarchy.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
52 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The fair value of the interest rate swap is determined using widely accepted valuation techniques, including discounted cash
flow analysis on expected cash flows of the derivatives, using observable market-based inputs including interest rate curves
and implied volatilities, and is considered level 2 in the fair value hierarchy.
The fair value of the loan receivable from related party is determined by reference to rates that could be obtained for similar
instruments with similar terms and maturities and is considered level 2 in the fair value hierarchy.
There were no transfers of assets between fair value levels during the period presented herein.
(i) Prepaid CMHC premiums
Insurance premiums and fees paid to the Canada Mortgage and Housing Corporation ("CMHC") are presented within prepaid
expenses and other assets. The insurance premiums and fees are amortized over the loan amortization period, typically 25
to 40 years, and the amortization expense is included in finance costs in the consolidated statements of net income and
comprehensive income.
(j) Restricted cash
Restricted cash consists of tenant security deposits and a capital asset replacement reserve fund held in trust accounts. The
capital asset replacement reserve fund was established as a condition of a forgivable loan provided by the City of Toronto to
support affordable housing at a certain Toronto property.
(k) Cash
Cash includes cash on hand and cash maintained in bank accounts.
(l)
Income taxes
The REIT is a "mutual fund trust" and a "real estate investment trust" as defined in the Income Tax Act (Canada). Under current
tax legislation, a “real estate investment trust” is entitled to deduct distributions of taxable income such that it is not liable
to pay income taxes provided that its taxable income is fully distributed to Unitholders. The REIT qualifies as a “real estate
investment trust” and intends to make distributions not less than the amount necessary to ensure that the REIT will not be
liable to pay income taxes. Accordingly, no net current tax expenses or current or deferred income tax asset or liability has
been recorded in the consolidated financial statements.
(m) Revenue recognition
The REIT retains substantially all of the risks and benefits of ownership of its investment properties and therefore accounts
for leases with its tenants as operating leases.
Rental revenue includes base rents earned from tenants under operating lease agreements which is allocated to lease
components based on relative stand alone selling prices. The stand alone selling prices of the rental component are
determined using an adjusted market assessment approach and the stand alone selling prices of the service components are
determined using an expected cost plus a margin approach.
Rental revenue from the rental component is recognized on a straight line basis over the lease term. When the REIT provides
incentives to its tenants, the cost of incentives is recognized over the lease term, on a straight line basis, as a reduction of
revenue.
Revenue from services represents the service component of the REIT’s leases and is accounted for in accordance with IFRS
15, Revenue from Contracts with Customers (‘‘IFRS 15’’). These services consist primarily of the recovery of utility, property
maintenance and amenity costs where the REIT has determined it is acting as a principal and is recognized over time when
the services are provided. Payments are due at the beginning of each month and any payments made in advance of scheduled
due dates are recorded as contract liabilities.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
53 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Management fees are earned from asset, project and property management of jointly controlled properties. Management
fees are recorded in fees and other income as the services are provided. Payments for property management fees are due at
the beginning of each month, asset management fees are due at the beginning of each quarter and project management fees
are due 30 days in arrears.
(n) Expenses
Operating expenses and general and administrative expenses are recognized in the consolidated statements of net income
and comprehensive income in the period in which they are incurred.
(o) Finance costs
Finance costs are comprised of interest expense on secured debt and unsecured debt, amortization of mark to market
adjustments, CMHC premiums and financing charges, distributions on Class B LP Units and Class C LP Units, gain on retirement
of debt, and fair value adjustments to Class B LP Units and an interest rate swap. Finance costs associated with financial
liabilities presented at amortized cost are presented in the consolidated statements of net income and comprehensive income
using the effective interest method. Finance costs also includes interest income which is recognized as earned.
(p) Unit-based compensation
The REIT maintains an Omnibus Equity Incentive Plan (the "Plan") for its Trustees and executives pursuant to which eligible
participants may receive Deferred Units, Performance Units, Restricted Units or other similar types of security based
compensation. Awards under these plans may be settled by Units issued from treasury or, if so elected by the participant and
subject to the approval of the Board of Trustees, cash payable upon settlement. The grant date fair value of the amount payable
is recognized as part of general and administrative expenses over the vesting period, with a corresponding increase in liabilities
over the service period related to the award. The grant date fair value is calculated using the market price of the Units on the
grant date. Market price is defined as the volume weighted average closing price of the Units on the Toronto Stock Exchange
for the five trading days immediately preceding such date. The liability is remeasured at each reporting date and settlement
date using the market price of the Units as defined in the Plan as of the date of measurement. Any changes in the value of
the liability are recognized as fair value adjustments through the consolidated statements of net income and comprehensive
income.
(q) Critical judgments in applying accounting policies
The following are the critical judgments that have been made in applying the REIT’s accounting policies and that have the
most significant effect on the amounts in the consolidated financial statements:
Investment property acquisitions
The REIT must assess whether an acquisition transaction should be accounted for as an asset acquisition or a business
combination under IFRS 3, Business Combinations. This assessment requires Management to make judgments on whether
the assets acquired and liabilities assumed constitute a business as defined in IFRS 3 and if the integrated set of activities,
including inputs and processes acquired, are capable of being conducted and managed as a business and the REIT obtains
control of the business.
Income taxes
The REIT is a mutual fund trust and a real estate investment trust as defined in the Income Tax Act (Canada). The REIT is not
liable to pay Canadian income taxes provided that its taxable income is fully distributed to Unitholders each year. The REIT is
a real estate investment trust if it meets the prescribed conditions under the Income Tax Act (Canada) relating to the Real
Estate Investment Trust conditions. The REIT uses judgment in reviewing the Real Estate Investment Trust conditions and
assessing its interpretation and application to the REIT’s assets and revenue, and it has determined that it qualifies as a real
estate investment trust for the current period.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
54 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Interest in joint operations
The REIT assesses whether an arrangement should be accounted for as a joint operation or a joint venture under IFRS 11,
Joint Arrangements. This assessment requires Management to make judgments on whether the REIT's rights and obligations
arising from the arrangement constitute a joint operation or a joint venture.
(r) Critical accounting estimates and assumptions
The REIT makes estimates and assumptions that affect the carrying amounts of assets and liabilities and the reported amount
of income for the period. Actual results could differ from estimates. The estimates and assumptions that the REIT considers
critical include:
Investment properties valuation
In applying the REIT’s policy with respect to investment properties, estimates and assumptions are required to determine the
valuation of the properties under the fair value model.
(s) Adoption of new standards, amendments and interpretations
IFRS 16, Leases
The REIT adopted amended standard IFRS 16, Leases, effective January 1, 2019 using the modified retrospective approach.
The REIT has determined that the adoption of this standard did not have a material impact on the REIT's consolidated financial
statements and did not result in changes to opening equity as at January 1, 2019.
(t) Future changes in accounting standards
Definition of a business (Amendments to IFRS 3, Business Combinations)
On October 22, 2018, the IASB issued amendments to IFRS 3, Business Combinations that seek to clarify whether a transaction
results in an asset acquisition or a business combination. The amendments apply to businesses acquired in annual reporting
periods beginning on or after January 1, 2020. Earlier application is permitted.
The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset
acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of
similar identifiable assets. If a preparer chooses not to apply the concentration test, or the test is failed, then the assessment
focuses on the existence of a substantive process.
The REIT intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2020, when the
standard becomes effective. The REIT is assessing the potential impact of the amendments, however, does not expect them
to have a material impact on the REIT's consolidated financial statements.
There are no other changes in accounting standards or interpretations under IFRS that have been adopted but are not yet
effective that would have a material impact on the REIT's consolidated financial statements.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
55 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
3. Business combination
On July 2, 2018, the REIT completed the indirect acquisition of the Initial Portfolio from Minto Properties Inc. ("MPI"). The acquisition
of the Initial Portfolio was accounted for as a business combination using the purchase method of accounting, with the allocation
to the fair value of identifiable net assets acquired as follows:
Investment properties
Prepaid expenses and other assets
Resident and other receivables
Cash
Mortgages, including mark-to-market adjustment of $2,742
Tenant rental deposits
Due to related parties
Accounts payable and accrued liabilities
Excess fair value of net assets acquired over consideration paid - bargain purchase gain
Total consideration for acquisition
Consideration given by the REIT consists of the following:
Issuance of Class B LP Units
Issuance of Class C LP Units, including mark-to-market adjustment of $3,558
Unsecured promissory note issued to MPI, including mark-to-market adjustment of $88
Unsecured promissory note issued to MPI
Acquisition note issued to MPI
Total consideration for acquisition
$
$
$
$
July 2, 2018
1,123,000
4,677
87
2,100
(239,754)
(5,234)
(1,049)
(1,067)
882,760
(79,163)
803,597
(332,463)
(233,608)
(25,780)
(28,458)
(183,288)
(803,597)
The unsecured promissory note of $28,458 and the acquisition note of $183,288 were paid on July 3, 2018.
The unsecured promissory note of $25,780 was repaid on November 23, 2018.
4. Investment properties
Opening balance
Additions
Acquisition of the Initial Portfolio (Note 3)
Acquisitions of investment properties (Note 5)
Capital expenditures
Fair value gain
Closing balance
December 31, 2019
December 31, 2018
1,197,811 $
—
—
702,393
22,908
93,216
2,016,328 $
1,123,000
20,376
14,387
40,048
1,197,811
$
$
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
56 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following is a breakdown of the REIT's investment properties by type:
Residential properties
Commercial properties
Land held for development
December 31, 2019
December 31, 2018
1,979,657 $
22,840
13,831
2,016,328 $
1,175,915
21,896
—
1,197,811
$
$
The fair value methodology for the REIT’s investment properties is considered level 3, as significant unobservable inputs are required
to determine fair value. The fair value of investment properties is based on internal valuations and as at December 31, 2019, the
entire portfolio was internally valued. The REIT's internal valuation team consists of qualified individuals who hold recognized
relevant professional qualifications and have recent experience in the location and category of the respective properties.
The REIT also engaged leading independent national real estate appraisal firms with representation and expertise across Canada,
and specifically in the markets in which the REIT operates, in order to ensure that every REIT property is externally appraised at
least once every three years. These external appraisals were used by Management to assist in the validation of the market
assumptions and market data used as part of its internal valuation model. For the year ended December 31, 2019, the REIT obtained
external property appraisals representing approximately 42.0% (December 31, 2018 - 100.0%) of the REIT's investment properties.
The following table summarizes the key unobservable inputs in determining fair value:
Residential
properties
Valuation approach
Direct capitalization
approach
Commercial
properties
Discounted future
cash flow approach
Key unobservable
inputs
Inter-relationship between key unobservable inputs and
fair value measurement
Capitalization rates
There is an inverse relationship between the
capitalization rates and the fair value; in other words, the
higher the capitalization rates, the lower the estimated
fair value.
Discount and
terminal
capitalization rates
There is an inverse relationship between the discount and
capitalization rates and the fair value; in other words, the
higher the discount and/or capitalization rates, the lower
the estimated fair value.
The following table summarizes the key valuation metrics of the REIT's residential properties:
Capitalization rate
December 31, 2019
December 31, 2018
Min
3.25%
Max
4.75%
Weighted
average
3.92%
Min
3.38%
Max
5.00%
Weighted
average
4.20%
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
57 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following table summarizes the sensitivity of the fair value of residential properties to changes in capitalization rates as at
December 31, 2019 and 2018:
Rate sensitivity
+75 basis points
+50 basis points
+25 basis points
Base rate
-25 basis points
-50 basis points
-75 basis points
December 31, 2019
December 31, 2018
Fair value
Change in fair value
Fair value
Change in fair value
$
1,645,299 $
1,743,749
1,854,384
1,979,657
2,122,739
2,287,814
2,480,513
(334,358) $
(235,908)
(125,273)
—
143,082
308,157
500,856
989,758 $
1,045,000
1,106,651
1,175,915
1,254,324
1,343,864
1,447,155
(186,157)
(130,915)
(69,264)
—
78,409
167,949
271,240
The following table summarizes the key valuation metrics of the REIT's commercial properties:
Discount rate
Terminal capitalization rate
Number of discount years
December 31, 2019
December 31, 2018
Min
5.75%
5.25%
Max
6.75%
6.25%
Weighted
average
6.00%
5.50%
10.00
Min
5.75%
5.25%
Max
6.75%
6.25%
Weighted
average
6.07%
5.54%
10.00
The following table summarizes the sensitivity of the fair value of commercial properties to changes in capitalization and
discount rates at December 31, 2019 and 2018:
$
Rate sensitivity
+75 basis points
+50 basis points
+25 basis points
Base rate
-25 basis points
-50 basis points
-75 basis points
December 31, 2019
December 31, 2018
Fair value
Change in fair value
Fair value
Change in fair value
19,650 $
20,650
21,690
22,840
24,130
25,540
27,020
(3,190) $
(2,190)
(1,150)
—
1,290
2,700
4,180
18,738 $
19,703
20,755
21,896
23,166
24,558
26,099
(3,158)
(2,193)
(1,141)
—
1,270
2,662
4,203
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
58 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
5. Acquisitions of investment properties
The REIT completed the following investment property acquisitions, which were accounted for as asset acquisitions and
have contributed to the operating results effective from the acquisition date.
For the year ended December 31, 2019:
Property
Date of
acquisition
Total
acquisition
cost
Assumed
mortgage
financing
Subsequent
mortgage
financing
370 & 380 Quarry Way SE, Calgary,
AB ("The Quarters")
January 7,
2019
740 & 750 York Mills Road and 17
Farmstead Road, Toronto, ON
("Leslie York Mills")
4850-4874 Côte-des-Neiges Road,
Montreal, QC ("Rockhill")
May 1,
2019
May 7,
2019
66 Oakmount Road, 111 Pacific
Avenue and 255 Glenlake Avenue,
Toronto, ON ("High Park Village")
August 1,
2019
4300 de Maisonneuve Boulevard
West, Montreal, QC ("Le 4300")
November
20, 2019
196,343
2150-2174 Sherbrooke Street West,
2211-2255 Lambert Closse Street,
2151-2177 Lincoln Avenue and 2260
Chomedey Street, Montreal, QC
("Haddon Hall")
November
20, 2019
91,027
—
—
$
63,954 $
— $
44,316
76,804
23,392
—
2.82%
February 1, 2021
137,532
—
67,500
136,733
39,480
Interest rate and
maturity
Ownership
interest
3.04%
September 1, 2029
100%
50%
50%
40%
3.42%
July 25, 2029
One month
bankers' acceptance
plus 185 bps¹
April 1, 2026
—
—
—
100%
45,000
3.16%
December 1, 2030
100%
$
702,393 $
62,872 $
156,816
¹ In connection with this acquisition, the REIT assumed an interest rate swap to receive variable interest based on one month bankers'
acceptance plus 185 bps and pay fixed interest at 3.38%.
For the period from April 24, 2018 to December 31, 2018:
Property
2505 24 Street NW, Calgary, AB
("Kaleidoscope")
Date of
acquisition
December
18, 2018
Total
acquisition
cost
Assumed
mortgage
financing
Subsequent
mortgage
financing
$
20,376 $
12,744 $
—
Interest rate and
maturity
Ownership
interest
3.59%
June 1, 2020
100%
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
59 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Cash used in acquisitions of investment properties is as follows:
Total acquisition cost
Mortgages assumed
Interest rate swap acquired
Issuance of Class B LP Units (Note 9)
Deposits applied on acquisition
Transaction costs payable
Working capital assumed
Cash consideration paid on close
December 31, 2019
December 31, 2018
$
$
(702,393) $
62,872
(232)
56,964
3,000
6,052
2,164
(571,573) $
(20,376)
12,744
—
—
—
—
167
(7,465)
6. Joint operations
The REIT jointly owns and operates three investment properties. The REIT has determined them to be joint operations.
Accordingly, the consolidated financial statements of the REIT include its share of revenues, expenses, assets and liabilities. The
REIT's ownership interests in the joint operations as at December 31, 2019 are as follows:
Property
Leslie York Mills
Rockhill
High Park Village
Date of acquisition
Ownership interest
May 1, 2019
May 7, 2019
August 1, 2019
50%
50%
40%
7. Prepaid expenses and other assets
Prepaid expenses
Prepaid CMHC premiums
Restricted cash
Deposits
Interest rate swap
Current
Non-current
December 31, 2019
December 31, 2018
$
$
$
1,314 $
4,506
1,012
2,352
1,111
10,295 $
4,641
5,654
10,295 $
1,145
1,618
792
3,678
—
7,233
5,408
1,825
7,233
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
60 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
In connection with the acquisition of High Park Village on August 1, 2019, the REIT assumed an interest rate swap to receive variable
interest based on one month bankers' acceptance plus 185 bps and pay fixed interest at 3.38%.
The following table is a summary of the REIT's interest rate swap and its respective fair value as at December 31, 2019:
Instrument
Maturity
Fixed rate
Original notional
amount
Notional amount
Fair value
Interest rate swap¹ April 2026
3.38%
$42,360
$39,173
$1,111
¹ The REIT has a 40% ownership interest in this contract through the ownership of a joint operation.
The fair value of the interest rate swap is determined using widely accepted valuation techniques, including discounted cash flow
analysis on expected cash flows of the derivatives, using observable market-based inputs including interest rate curves and implied
volatilities, and is considered level 2 in the fair value hierarchy.
The following table summarizes the beginning and ending fair value of the swap for the period presented:
Balance, January 1, 2019
Non-cash movement
Acquired, August 1, 2019
Fair value gain
Balance, December 31, 2019
8. Resident and other receivables
Current
Resident receivables
Other receivables
Less: Allowance for credit losses
December 31, 2019
—
232
879
1,111
$
$
December 31, 2019
December 31, 2018
$
$
384 $
1,526
(83)
1,827 $
478
589
(78)
989
There is no significant concentration of credit risk with respect to resident receivables as the REIT has a high volume of tenants
with individually small monthly rent amounts.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
61 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
9. Class B LP Units
The following table reconciles the changes in cash flows and outstanding units for the Class B LP Units:
Balance, April 24, 2018
Cash flows
Redeemed, July 10, 2018
Non-cash movement
Issued, July 3, 2018
Fair value loss
Balance, December 31, 2018
Non-cash movement
Issued, August 1, 2019 (Note 5)
Exchanged for Units, September 17, 2019 (Note 14)
Fair value loss
Balance, December 31, 2019
Units
— $
$
—
(2,069,100)
(28,277)
22,928,510
—
22,928,510
20,859,410 $
2,806,122
(896,459)
—
1,909,663
22,769,073 $
332,463
81,713
414,176
385,899
56,964
(20,000)
104,241
141,205
527,104
For the year ended December 31, 2019, distributions of $9,195 (December 31, 2018 - $4,229) to Class B LP Unitholders were
declared.
The fair value methodology for the Class B LP Units is considered level 2 within the fair value hierarchy.
10. Class C LP Units
Class C LP Units
Unamortized mark-to-market adjustments
Current
Non-current
December 31, 2019
December 31, 2018
$
$
$
222,702 $
2,835
225,537 $
5,653
219,884
225,537 $
227,721
3,316
231,037
5,499
225,538
231,037
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
62 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following table reconciles the changes in cash flows and outstanding units for the Class C LP Units:
Balance, April 24, 2018
Cash flows
Distributions used to repay principal
Non-cash movement
Class C LP Units issued
Mark-to-market adjustment
Amortization of mark-to-market adjustments
Balance, December 31, 2018
Cash flows
Distributions used to repay principal
Non-cash movement
Amortization of mark-to-market adjustments
Balance, December 31, 2019
Units
— $
$
—
—
(2,329)
22,978,700
—
—
22,978,700
22,978,700 $
—
—
22,978,700 $
230,050
3,558
(242)
233,366
231,037
(5,019)
(481)
225,537
For the year ended December 31, 2019, the REIT made distributions of $7,066 (December 31, 2018 - $3,606) to the Class C LP
Unitholder that were accounted for as finance costs.
The mortgages of investment properties to which the distributions on the Class C LP Units relate bear a weighted average contractual
interest rate of 3.16% (December 31, 2018 - 3.16%) and mature at various dates between 2023 and 2030 (December 31, 2018 -
2023 and 2030).
Distributions on Class C LP Units as at December 31, 2019, excluding unamortized mark-to-market adjustments, are due as follows:
2020
2021
2022
2023
2024 and thereafter
$
5,178
5,341
5,510
50,234
156,439
Fair value for the Class C LP Units is calculated based on current market rates plus risk-adjusted spreads on discounted cash flows.
As at December 31, 2019, the current market rates plus risk-adjusted spreads ranged from 2.60% to 3.40% (December 31, 2018 -
2.81% to 3.64%) and the fair value of the Class C LP Units was $227,507 (December 31, 2018 - $230,210) and is considered level 2
within the fair value hierarchy.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
63 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
11. Secured Debt
Mortgages - fixed rate¹
Unamortized mark-to-market adjustment
Unamortized deferred financing costs
Total mortgages
Credit facility²
Current
Non-current
December 31, 2019
December 31, 2018
$
$
$
487,876 $
1,741
(310)
489,307
91,009
580,316 $
21,490
558,826
580,316 $
273,574
2,038
(11)
275,601
35,925
311,526
5,822
305,704
311,526
¹ Fixed rate mortgages are secured by investment properties, bear interest at a weighted average contractual interest rate of 3.14%
(December 31, 2018 - 3.20%) and mature at various dates from 2020 through 2030 (December 31, 2018 - 2020 through 2030). The
fixed rate mortgages include a $39,174 (December 31, 2018 - $nil) variable interest mortgage fixed through an interest rate swap.
² The REIT has a committed credit facility of $200,000 (December 31, 2018 - $150,000) that is secured by several investment
properties, matures on July 3, 2021 and is used to fund working capital requirements, acquisitions and for general corporate
purposes. At December 31, 2019, $108,991 (December 31, 2018 - $114,075) of this facility was available in accordance with its
terms and conditions and $91,009 (December 31, 2018 - $35,925) was utilized. The credit facility bears interest at one month
bankers' acceptance plus 175 bps or prime plus 75 bps and as at December 31, 2019, the weighted average variable interest rate
was 3.72% (December 31, 2018 - 3.94%).
The secured debt balances at December 31, 2019, excluding unamortized mark-to-market adjustments and unamortized deferred
financing costs, are due as follows:
2020
2021
2022
2023
2024 and thereafter
$
21,227
122,280
95,750
54,908
284,720
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
64 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following tables reconcile the changes in cash flows for secured debt:
Balance, April 24, 2018
$
— $
— $
— $
— $
Unamortized
mark-to-market
adjustments
Unamortized
deferred
financing costs
Mortgages
Credit facility
Cash flows
Issued
Repayments
Non-cash movement
Assumed upon business combination
Assumed on asset acquisition
Gain on retirement of mortgage
Amortization of mark-to-market
adjustment
26,024
(2,206)
23,818
237,012
12,744
—
—
249,756
—
—
—
2,742
—
(519)
(185)
2,038
(11)
—
(11)
—
—
—
—
—
41,383
(5,458)
35,925
—
—
—
—
—
Balance, December 31, 2018
$
273,574 $
2,038 $
(11) $
35,925 $
Cash flows
Issued
Repayments
Non-cash movement
Assumed on asset acquisition
Deferred financing amortization
Amortization of mark-to-market
adjustment
158,360
(6,930)
151,430
62,872
—
—
62,872
—
—
—
—
—
(297)
(297)
(322)
—
(322)
—
23
—
23
257,084
(202,000)
55,084
—
—
—
—
Balance, December 31, 2019
$
487,876 $
1,741 $
(310) $
91,009 $
Total
—
67,396
(7,664)
59,732
239,754
12,744
(519)
(185)
251,794
311,526
415,122
(208,930)
206,192
62,872
23
(297)
62,598
580,316
The following table summarizes new financings for the year ended December 31, 2019:
Issue date
March 6, 2019
May 1, 2019
August 1, 2019
August 19, 2019²
November 20, 2019
Mortgage financing
Secured by
Interest rate
Maturity date
$44,316
23,392
39,480
69,044
45,000
The Quarters
Leslie York Mills
High Park Village
Rockhill
Haddon Hall
3.04%
2.82%
One month bankers'
acceptance plus 185 bps¹
2.91%
3.16%
September 1, 2029
February 1, 2021
April 1, 2026
October 1, 2029
December 1, 2030
¹ In connection with this mortgage assumption, the REIT also assumed an interest rate swap to receive variable interest based on one month
bankers' acceptance plus 185 bps and pay fixed interest at 3.38%.
² On May 7, 2019, in connection with the acquisition of Rockhill, the REIT acquired a $67,500 conventional mortgage, with an interest rate of
3.42% and maturing on July 25, 2029. On August 19, 2019, CMHC insurance was obtained for this mortgage, with an additional $1,544 borrowed
to finance the CMHC premiums. The CMHC insured mortgage bears interest at 2.91% and matures on October 1, 2029.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
65 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following table summarizes new financings for the period from April 24, 2018 to December 31, 2018:
Issue date
November 23, 20181
December 18, 2018
Mortgage financing
Secured by
Interest rate
Maturity date
$49,831
$12,744
Richgrove
Kaleidoscope
3.25%
3.59%
December 1, 2022
June 1, 2020
1 The REIT used a portion of this financing to repay an existing mortgage of $23,807 associated with the property located at 7 & 21 Richgrove
Drive, Toronto, ON ("Richgrove") and the outstanding balance of an unsecured promissory note of $25,587 due to MPI.
As at December 31, 2019, the REIT was in compliance with all financial covenants relating to its debt obligations.
Fair value for mortgages is calculated based on current market rates plus risk-adjusted spreads on discounted cash flows. As at
December 31, 2019, the current market rates plus risk-adjusted spreads ranged from 2.60% to 3.90% (December 31, 2018 - 2.81%
to 3.38%) and the fair value of the mortgages was $494,589 (December 31, 2018 - $276,954) and is considered level 2 within the
fair value hierarchy. Given the variable nature of the credit facility, its carrying value approximates its fair value.
12. Related-party transactions
In the normal course of operations, the REIT enters into various transactions with related parties. In addition to the related
party transactions disclosed elsewhere in these consolidated financial statements, related party transactions include:
(a) Administrative support agreement
On July 3, 2018, the REIT and MPI entered into a five year renewable Administrative Support Agreement ("ASA"). The ASA provides
the REIT with certain advisory, transaction and support services, including clerical and administrative support, operational support
for the administration of day-to-day activities of the REIT and office space. These services are provided on a cost recovery basis,
subject to a maximum for all general and administrative expenses, excluding public company costs, of 32 bps of the gross book
value of the REIT's assets.
For the year ended December 31, 2019, the REIT incurred $848 (December 31, 2018 - $282) for services rendered under the ASA.
(b) Unsecured promissory notes
On closing of the Initial Public Offering ("IPO"), the REIT issued an unsecured promissory note to MPI with a principal amount of
$25,692 and mark-to-market adjustment of $88, bearing interest at 2.84%, with interest and principal amounts due monthly in
arrears and a maturity date of July 1, 2019. On November 23, 2018, the REIT fully repaid the promissory note to MPI.
On July 3, 2018, the REIT fully repaid an unsecured promissory note issued to MPI in the amount of $28,458.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
66 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(c) Loan receivable from related party
The REIT committed to advance up to $30,000 to an affiliate of MPI to support its redevelopment of a commercial property located
at 99 Fifth Avenue, Ottawa, Ontario ("Fifth and Bank"). The loan bears interest at 6% per annum and matures on March 31, 2022.
The loan is secured by a second priority charge in favor of the lender and a guarantee by MPI. Both the principal and interest are
due on maturity. In connection with this financing, the REIT will have the exclusive option to purchase the property upon stabilization
at 95% of the fair market value as determined by independent and qualified third-party appraisers.
The following table summarizes the activity of the loan receivable:
Balance, January 1, 2019
Cash flows
Advances
Non-cash movement
Accrued interest
Balance, December 31, 2019
$
$
$
—
19,727
195
19,922
The fair value of the loan receivable from related party is determined by reference to current market rates that could be obtained
for similar instruments with similar terms and maturities. As at December 31, 2019, the carrying value of the loan approximates
its fair value and is considered level 2 within the fair value hierarchy.
(d) Due to related parties
Amounts due to related parties at December 31, 2019 include $732 and $588 (December 31, 2018 - $713 and $602) relating to
distributions payable to limited partnerships wholly-owned by MPI on Class B LP Units and Class C LP Units respectively. Additionally,
amounts due to MPI include $288 (December 31, 2018 - $1,643) for working capital, $103 (December 31, 2018 - $nil) for distributions
on Class B LP Units, $33 (December 31, 2018 - $nil) for distributions on Units, $nil (December 31, 2018 - $1,049) to reimburse
transaction costs and $94 (December 31, 2018 - $282) in connection with the ASA.
(e) Revenue and expenses
•
•
•
•
•
•
Included in rental revenue for the year ended December 31, 2019 is $842 (December 31, 2018 - $229) of revenue from MPI
and its affiliates as rent for office space, furnished suites, parking and other revenue at certain REIT properties.
Included in property operating expenses for the year ended December 31, 2019 is $954 (December 31, 2018 - $nil) paid to
MPI and its affiliates.
For the year ended December 31, 2019, compensation to key management personnel includes $768 (December 31, 2018 -
$296) paid to executives, Unit-based compensation expense of $291 (December 31, 2018 - $139) for executives and Unit-
based compensation expense for the grant of Deferred Units to Trustees in lieu of annual retainer and meeting fees of $474
(December 31, 2018 - $306), respectively. Additional compensation to key management personnel for services provided to
the REIT was paid by MPI and its affiliate.
Included in finance costs for the year ended December 31, 2019 are distributions on Class B LP Units of $9,195 (December
31, 2018 - $4,229), paid or payable to MPI and a limited partnership wholly-owned by MPI.
Included in finance costs for the year ended December 31, 2019 are distributions on Class C LP Units of $7,066 (December
31, 2018 - $3,606), paid or payable to a limited partnership wholly-owned by MPI.
For the year ended December 31, 2019 the REIT reimbursed $312 (December 31, 2018 - $nil) to MPI for costs paid on behalf
of the REIT.
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
67 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(f) Distributions
•
•
For the year ended December 31, 2019, distributions of $5,019 (December 31, 2018 - $2,329) were made to a limited
partnership wholly-owned by MPI in order to repay principal on Class C LP Units.
For the year ended December 31, 2019, distributions on Units to MPI of $131 (December 31, 2018 - $nil) were declared and
recorded as a reduction to Unitholders' equity.
(g) Property acquisitions
•
•
On May 1, 2019, the REIT acquired MPI's 50% ownership interest in Leslie York Mills in Toronto, Ontario for a purchase price
of $75,050. In connection with the acquisition, the REIT assumed a mortgage of $23,392.
On August 1, 2019, the REIT acquired MPI's 40% ownership interest in High Park Village in Toronto, Ontario for a purchase
price of $131,214. In connection with the acquisition, the REIT assumed a mortgage of $39,480 which bears interest at one
month bankers' acceptance plus 185 bps and matures on April 1, 2026. In addition, the REIT assumed an interest rate swap
to receive variable interest based on one month bankers' acceptance plus 185 bps and pay fixed interest at 3.38%. The purchase
price was partially satisfied by the issuance of 2,806,122 Class B LP Units to MPI for $55,000.
13. Accounts payable and accrued liabilities
Accounts payable
Accrued liabilities
Distributions payable
Unit-based compensation (Note 22)
Current
Non-current
December 31, 2019
December 31, 2018
$
$
$
5,571 $
11,539
1,297
1,611
20,018 $
19,744
274
20,018 $
4,843
3,422
542
521
9,328
9,152
176
9,328
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
68 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
14. Units
The following table presents the change in and outstanding amount of Units:
Authorized
Units issued and outstanding:
Balance, April 24, 2018
On date of formation, April 24, 2018
Issued on IPO closing, July 3, 2018, net
Redeemed, July 3, 2018
Issued, July 10, 2018, net
Balance, December 31, 2018
Issued, April 15, 2019, net
Issued on exchange for Class B LP Units, September 17, 2019 (Note 9)
Issued, October 22, 2019, net
Issued, November 25, 2019, net
Balance, December 31, 2019
Units
Unlimited
— $
2
13,794,000
(2)
2,069,100
15,863,100
15,863,100 $
8,809,000
896,459
9,850,000
856,280
20,411,739
36,274,839 $
$
—
—
183,813
—
28,265
212,078
212,078
165,172
20,000
215,401
18,783
419,356
631,434
On July 3, 2018, the REIT completed the IPO of 13,794,000 Units from treasury at a price of $14.50 per Unit for net proceeds of
$183,813. Underwriters' fees and expenses relating to the IPO were $16,200.
On July 10, 2018, the REIT completed the issuance of an additional 2,069,100 Units from treasury at a price of $14.50 per Unit for
net proceeds of $28,265 pursuant to the over-allotment option granted to the underwriters in connection with the issuance of
Units on July 3, 2018. Underwriters' fees and expenses relating to the over-allotment were $1,737.
On April 15, 2019 the REIT completed the issuance of 8,809,000 Units from treasury at a price of $19.60 per Unit for net proceeds
of $165,172. The issuance included 1,149,000 Units sold pursuant to the full exercise of an over-allotment option granted to the
underwriters. Underwriters' fees and expenses relating to the issuance were $7,484.
On September 17, 2019, the REIT issued 896,459 Units from treasury in exchange for Class B LP Units at a price of $22.31 per Unit
and valued at $20,000.
On October 22, 2019, the REIT completed the issuance of 9,850,000 Units from treasury at a price of $22.85 per Unit for net
proceeds of $215,401. Underwriters' fees and expenses relating to the issuance were $9,672.
On November 25, 2019, the REIT completed the issuance of an additional 856,280 Units from treasury at a price of $22.85 for net
proceeds of $18,783 pursuant to the over-allotment option granted to the underwriters in connection with the issuance of Units
on October 22, 2019. Underwriters' fees and expenses relating to the issuance were $783.
For the year ended December 31, 2019, distributions to Unitholders of $10,799 (December 31, 2018 - $3,216) were declared. This
represents monthly distributions of $0.03416 per Unit for the months of January to July 2019 and $0.03667 per Unit for the months
of August to December 2019 (December 31, 2018 - monthly distribution of $0.03196 per Unit for the months of July 2018 and
$0.03416 per Unit for August to December 2018).
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
69 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
15. Segment reporting
The REIT owns, manages and operates multi-residential rental properties located in Canada, including three mixed-use residential
apartment and commercial buildings. Management, when measuring the REIT's performance, does not distinguish or group its
operations on a geographical or any other basis. Accordingly, the REIT has a single reportable segment for disclosure purposes in
accordance with IFRS.
16. Revenue from investment properties
The components of revenue from investment properties are as follows:
Rental revenue
Revenue from services
17. Finance costs
Finance costs are comprised of the following:
Interest expense on mortgages
Interest expense & standby fees on credit facility
Interest expense on unsecured debt
Amortization of financing charges
Amortization of CMHC premiums
Amortization of mark-to-market adjustments
Interest income
Gain on retirement of debt
Interest expense & other financing charges
Distributions on Class B LP Units
Distributions on Class C LP Units
Finance costs - operations
Fair value loss on Class B LP Units
Fair value gain on interest rate swap
Finance costs
Year ended
December 31, 2019
Period from April
24, 2018 to
December 31, 2018
85,588 $
18,850
104,438 $
34,072
8,403
42,475
Year ended
December 31, 2019
Period from April
24, 2018 to
December 31, 2018
12,255 $
2,619
—
233
83
(778)
(541)
—
13,871
9,195
7,066
30,132 $
104,241
(879)
133,494 $
3,881
809
298
92
4
(463)
(8)
(573)
4,040
4,229
3,606
11,875
81,713
—
93,588
$
$
$
$
$
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
70 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
18. Contingencies and commitments
The REIT is subject to claims and legal actions that arise in the ordinary course of business. It is the opinion of Management that
any ultimate liability that may arise from such matters would not have a significant adverse effect on the consolidated financial
statements of the REIT.
The REIT has committed to pay MPI for a certain investment property currently under reconstruction due to a fire. The purchase
price for this investment property is expected to be at fair value and is payable once the construction at the investment property
is complete and the investment property is stabilized. The maximum purchase price is $8,356.
The REIT has an off-balance sheet arrangement at one of its properties in the Toronto area pursuant to which the City of Toronto
provided a forgivable loan to support affordable housing at this property. Provided that certain conditions are met, the REIT will
not need to make repayments under this arrangement. As of December 31, 2019, the remaining unforgiven balance of the loan
which has not been recorded by the REIT is $17,136 (December 31, 2018 - $18,360). To date, the REIT has met all conditions related
to this forgivable loan and management intends to continue to meet these requirements.
The REIT has an off-balance sheet arrangement at one of its properties in the Calgary area pursuant to which the Province of Alberta
provided a forgivable loan to support affordable housing at this property. Provided that certain conditions are met, the REIT will
not need to make repayments under the arrangement. As of December 31, 2019, the remaining unforgiven balance of the loan
which has not been recorded by the REIT is $4,368 (December 31, 2018 - $4,704). To date, the REIT has met all conditions related
to this forgivable loan and management intends to continue to meet these requirements.
As at December 31, 2019, the REIT has committed to advance up to an additional $10,078 to an affiliate of MPI to support its
redevelopment of Fifth and Bank.
The REIT is a guarantor on a joint and several basis for mortgage debt held through one of its joint operations. As at December 31,
2019, the maximum potential obligation resulting from these guarantees is $13,711 (December 31, 2018 - $nil).
19. Risk management
The REIT's activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk.
Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk consists of interest rate risk, currency risk and other price risk.
(a)
Interest rate risk
As the REIT’s interest-bearing assets mainly comprise of fixed rate instruments, changes in market interest rates do not have
any significant direct effect on the REIT’s income.
The majority of the REIT's financial liabilities are fixed rate instruments. The REIT faces interest rate risk on its fixed rate debt
due to the expected requirement to refinance such debt in the year of maturity or shortly thereafter. In addition, there is
interest rate risk associated with the REIT's variable rate financial liabilities.
The REIT manages interest rate risk by structuring its financings to stagger the maturities of its debt, thereby mitigating its
exposure to interest rate and other credit market fluctuations.
For the portion of the REIT’s financial liabilities that is floating rate instruments, from time to time the REIT may enter into
interest rate swap contracts or other financial instruments to modify the interest rate profile of its outstanding debt without
an exchange of the underlying principal amount.
As at December 31, 2019, the REIT has a variable rate credit facility of $200,000 (December 31, 2018 - $150,000) with an
outstanding balance of $91,009 (December 31, 2018 - $35,925). A 1% change in prevailing interest rates would change
annualized interest charges incurred by $910 (December 31, 2018 - $359).
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
71 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(b) Currency risk
The REIT’s financial statement presentation currency is Canadian dollars. Operations are located in Canada and the REIT has
limited operational transactions in foreign-denominated currencies. As such, the REIT has no significant exposure to currency
risk.
(c) Other price risk
Other price risk is the risk of variability in fair value due to movements in equity prices or other market prices such as commodity
prices and credit spreads.
The REIT is exposed to other price risk on its Class B LP Units. A 1% change in prevailing market price of the Units as at December
31, 2019 would have a $5,271 (December 31, 2018 - $3,859) change in fair value of the Class B LP Units.
Credit Risk
Credit risk is the risk that tenants and/or debtors may experience financial difficulty and be unable to fulfill their lease commitments
or loan repayments. An allowance for impairment is taken for all expected credit losses.
The REIT’s risk of credit loss from tenants experiencing financial difficulties is mitigated through diversification. The REIT’s residential
rental business is carried on in the Toronto, Montreal, Ottawa, Calgary and Edmonton regions. The nature of this business involves
a high volume of tenants with individually small monthly rent amounts. The REIT monitors the collection of residential rent
receivables on a regular basis with strictly followed procedures designed to minimize credit loss in cases of non-payment.
The REIT is also exposed to credit risk, relating to the loan advanced to an affiliate of MPI for the development of Fifth and Bank,
in the event that the borrower defaults on the repayment of amounts owing to the REIT. Management mitigates this risk by ensuring
adequate security has been provided.
Liquidity risk
Liquidity risk is the risk that the REIT will encounter difficulty in meeting obligations associated with financial liabilities that are
settled by delivering cash or another financial asset.
The REIT mitigates liquidity risk by staggering the maturity dates of its borrowing, maintaining borrowing relationships with various
lenders, proactively renegotiating expiring credit agreements well in advance of the maturity date and by maintaining sufficient
availability on its credit facility.
As of December 31, 2019, current liabilities of $57,401 (December 31, 2018 - $31,532) exceeded current assets of $8,396 (December
31, 2018 - $7,289), resulting in a net working capital deficit of $49,005 (December 31, 2018 - $24,243). The REIT's immediate
liquidity needs are met though cash-on-hand, cash flow from operations, property-level debt and availability on its credit facility.
As of December 31, 2019, liquidity was $110,919 (December 31, 2018 - $114,967) consisting of cash of $1,928 (December 31, 2018
- $892) and $108,991 (December 31, 2018 - $114,075) of available borrowing capacity under the credit facility. Management
believes that there is sufficient liquidity to meet the REIT’s financial obligations for the foreseeable future.
The REIT has a committed credit facility for working capital requirements, acquisitions and for general corporate purposes. The
committed credit facility consists of the following:
Committed
Available
Utilized
December 31, 2019
December 31, 2018
$
200,000 $
108,991
91,009
150,000
114,075
35,925
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
72 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
An analysis of the contractual cash flows associated with the REIT's material financial liabilities is set out below:
Mortgages
Credit facility
$
Class C LP Units
Interest obligation
Tenant rental deposits
Due to related parties
Accounts payable and accrued
liabilities
2020
21,227 $
—
21,227
5,178
25,193
8,676
1,838
2021
31,271 $
91,009
122,280
5,341
22,324
—
—
2022
95,750 $
—
95,750
5,510
19,261
—
—
2023
54,908 $
—
54,908
50,234
15,831
—
—
2024 and
thereafter
284,720 $
—
284,720
156,439
46,879
36
—
Total
487,876
91,009
578,885
222,702
129,488
8,712
1,838
19,744
184
82
8
—
20,018
$
81,856 $
150,129 $
120,603 $
120,981 $
488,074 $
961,643
The contractual cash flows do not include any unamortized mark-to-market adjustments or unamortized deferred financing costs.
20. Capital risk management
The REIT's capital consists of Class B LP Units, Class C LP Units, mortgages, a credit facility and Unitholders' equity. The REIT invests
its capital to achieve its business objectives and to generate an acceptable long-term return to the REIT’s Unitholders. Primary uses
of capital include property acquisitions, development activities, capital improvements and debt principal repayments.
The REIT’s principal objective with respect to debt financing is to minimize its overall borrowing costs while maintaining balance
in its maturity schedule, diversity in its lender base and having sufficient liquidity and flexibility to meet current obligations and to
pursue new projects. The REIT is subject to certain financial covenants and is in compliance with these covenants.
The actual level and type of future financings to fund the REIT’s capital obligations will be determined based on prevailing interest
rates, various costs of debt and/or equity capital, capital market conditions and management’s general view of the appropriate
leverage in the business.
The components of the REIT's capital are set out in the table below:
As at
Liabilities (principal amounts outstanding):
Class B LP Units
Class C LP Units
Mortgages
Credit facility
Unitholders' equity
December 31, 2019
December 31, 2018
$
$
527,104 $
222,702
487,876
91,009
1,328,691
686,775
2,015,466 $
385,899
227,721
273,574
35,925
923,119
258,252
1,181,371
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
73 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
21. Supplemental cash flow disclosures
Change in non-cash working capital comprises the following:
Prepaid expenses and other assets
Resident and other receivables
Tenant rental deposits
Due to related parties
Accounts payable and accrued liabilities
22. Unit-based compensation
Executives
Year ended
December 31, 2019
Period from April
24, 2018 to
December 31, 2018
$
$
(1,461) $
(838)
758
(2,696)
(2,502)
(6,739) $
(462)
(902)
1,270
1,241
4,173
5,320
Deferred Units granted to executives generally vest on the second, third or fourth anniversaries of the grant date and are settled
by Units issued from treasury equivalent to the number of Deferred Units credited, including any distributions paid by the REIT on
the Units that have accrued in the form of Deferred Units or, if so elected by the participant and subject to the approval of the Plan
Administrator, cash payable upon the participant’s separation from service with the REIT. The Board of Trustees has the discretion
to vary the manner in which the Deferred Units vest for any participant.
A summary of the deferred unit plan activity and the value of Unit-based compensation expense for the executives is presented
below:
Balance, April 24, 2018
Unit-based compensation expense
Fair value loss
Balance, December 31, 2018
Unit-based compensation expense
Fair value loss
Balance, December 31, 2019
$
$
$
$
—
139
37
176
291
188
655
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
74 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The details of movement in Deferred Units for the executives is as follows:
Balance, April 24, 2018
Granted
Distribution equivalents
Balance, December 31, 2018
Granted
Forfeited
Distribution equivalents
Balance, December 31, 2019
Trustees
Units
—
48,274
468
48,742
64,000
(5,288)
967
108,421
Trustees have the option to elect to receive up to 100% of all fees that are otherwise payable in cash (i.e. annual board retainer
fee, meeting fees and additional retainers) in the form of Deferred Units. Effective November 12, 2019, the REIT matched 45% of
the total value of annual board retainer fees and board and committee meeting fees that a trustee elected to receive in the form
of Deferred Units. Prior to November 12, 2019, the REIT matched up to 50% of the total value of the annual board retainer fee that
a Trustee elected to receive in the form of Deferred Units. Deferred Units granted in respect of a participant’s election to receive
Deferred Units in lieu of cash compensation vest immediately upon grant. Deferred Units granted further to any match by the REIT
also vest immediately. The Board of Trustees has the discretion to vary the manner in which the Deferred Units vest for any
participant. The Deferred Units are settled by Units issued from treasury equivalent to the number of Deferred Units credited,
including any distributions paid by the REIT on the Units that have accrued in the form of Deferred Units or, if so elected by the
participant and subject to the approval of the Plan Administrator, cash payable upon the participant’s separation from service with
the REIT.
A summary of the Deferred Units granted and the value of Unit-based compensation expense recorded for the Trustees is presented
below.
Balance, April 24, 2018
Granted and vested
Distribution equivalents
Fair value loss
Balance, December 31, 2018
Granted and vested
Distribution equivalents
Fair value loss
Balance, December 31, 2019
Units
— $
18,545
107
—
18,652 $
22,111
559
—
41,322 $
$
—
304
2
39
345
462
12
137
956
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
75 Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and the period from April 24, 2018 (date of formation) to December 31, 2018
(in thousands of Canadian dollars, except Unit and per Unit amounts)
23. Operating leases
The REIT has entered into lease agreements on its investment properties. The residential leases typically have lease terms of 1 to
12 months. The commercial leases have lease terms between 1 to 9 years. There were no residents that accounted for more than
10% of the REIT's total rental revenue for the year ended December 31, 2019 and the period from April 24, 2018 to December 31,
2018. The total future contractual minimum rent lease payments expected to be received under residential and commercial leases
are as follows:
Less than 1 year
Between 1 to 5 years
5 years and thereafter
December 31, 2019
December 31, 2018
$
$
30,855 $
3,156
405
34,416 $
17,714
3,559
109
21,382
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
76 Unitholder Information
Board of Trustees
Officers
Michael Waters
Chief Executive Officer
and President
Julie Morin
Chief Financial Officer
George Van Noten
Chief Operating Officer
Glen MacMullin
Chief Investment Officer
John Moss
General Counsel and
Corporate Secretary
Ben Mullen
Vice President, Asset Management
Edward Fu
Vice President, Finance
Martin Tovey
Vice President, Investments
Paul Baron
Vice President, Asset Management
Michael Waters
CEO and President of Minto
Apartment REIT and CEO of The
Minto Group
Roger Greenberg
Chairman of Minto Apartment REIT,
The Minto Group and Ottawa
Sports and Entertainment Group
Allan Kimberley(1,3)
Lead Trustee, Director of Orlando
Corporation
Philip Orsino
President and CEO of Brightwaters
Strategic Solutions Inc. and
Director of Bank of Montreal and
The Minto Group
Simon Nyilassy(1,2,3)
Chair of the Audit Committee, CEO
of Marigold & Associates Inc.,
President, CEO and Director of
CHC Student Housing Corp.
Jacqueline Moss(2,3)
Chair of the Compensation,
Governance and Nominating
Committee, Director of Investment
Management Corporation Ontario
and Health Ontario
Heather Kirk(1,2,3)
Executive Vice President and Chief
Financial Officer of Cominar REIT
(1) Member of the Audit Committee
(2) Member of the Compensation, Governance and Nominating Committee
(3) Independent
Minto Apartment Real Estate Investment Trust | 2019 Annual Report
Head Office
Minto Apartment REIT
180 Kent Street, Suite 200
Ottawa, Ontario K1P 0B6
T: 613-230-7051
Investor Information
www.mintoapartments.com
info@mintoapartmentreit.com
T: 613-230-7051
Auditor
KPMG LLP
Legal Counsel
Goodmans LLP
Transfer Agent
AST Trust Company (Canada)
1 Toronto Street, Suite 1200
Toronto, Ontario M5V 2V6
Unit Listing
TSX: MI.UN
Unit Distributions
January 2019 – July 2019
$0.03416 per Unit
August 2019 – December 2019
$0.03667 per Unit
Annual Meeting
The Annual General Meeting of
Unitholders will be held on
Wednesday, May 27, 2020 at
11 am at 150 Elgin Street. Suite
1800, Ottawa, Ontario K2P 2P8.
77 Minto Strategic Alliance
On May 1, 2019, Minto Apartment REIT
acquired a 50% interest in Toronto’s
Leslie York Mills property, a three
building, 409 rental suite residential
property. On August 1, 2019, the REIT
acquired a 40% interest in High Park
Village, a residential property consist-
ing of three buildings and 750 rental
suites located in a desirable
Toronto neighbourhood.
Both acquisitions were sourced
through the strategic alliance with
Minto Properties Inc.
Montreal Acquisitions
In 2019, Minto Apartment REIT entered the Montreal market with the acquisition of three high quality properties. On May 7, 2019,
the REIT acquired a 50% interest in Rockhill, a 1,004 suite residential rental property. On November 20, 2019, the REIT acquired
two properties, Haddon Hall and Le 4300, comprising a combined 528 rental suites.
Haddon Hall
Rockhill
Le 4300
Repositioning Program
Minto Apartment REIT continually monitors
local market demand and competing prod-
uct offerings to determine an appropriate
strategy for each of our properties. In certain
locations there are opportunities to renovate
and strategically reposition suites. Improve-
ments to suites and common areas in these
properties generate strong growth in rental
revenues and produce accretive financial
returns on invested capital. In 2019 the REIT
repositioned 219 suites.
Canada’s Leading Urban Residential REIT
1-613-230-7051
info@mintoapartmentreit.com
Minto Apartment REIT
200-180 Kent Street
Ottawa, ON, K1P 0B6
www.mintoapartments.com