2020 Annual Report TSX | MI.UN
Minto Apartment REIT
(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.
The REIT’s Objectives
• Provide Unitholders with the opportunity to invest in high quality income producing multi-residential rental properties
strategically located across urban centres in Canada
• Enhance asset value and maximize long-term Unitholder value through value-enhancing capital investments and active asset
and property management of the portfolio
• Provide Unitholders with predictable and sustainable cash distributions
• Expand the asset base across Canadian urban centres through acquisitions, intensification programs and development
Summary Information(1)
2020
2019
Suites
7,245
7,243
Average Rent per Suite
$1,623
$1,579
Occupancy Rate(4)
95.57%
98.01%
Total Assets
$2.2 Billion $2.1 Billion
Debt-to-Gross Book Value(2)
38.57%
39.30%
Weighted Average Term to Maturity(5) 5.81 Years
5.97 Years
Weighted Average Interest Rate(5)
2.94%
3.15%
Geographic Distribution of
Investment Property Value(3)
2%
5%
20%
32%
2020
42%
Ottawa
Toronto
Montreal
Calgary
Edmonton
$0.7248
$0.7407
$0.455
$22.62
$0.440
$20.56
$0.410
$17.54
$0.3604
2018
2019
2020
2018
2019
2020
2018
2019
2020
AFFO per unit(2)
Annualized distributions per unit(6)
NAV per unit(2)
(1) All amounts are as at December 31, 2020 and December 31, 2019, respectively.
(2) Debt-to-Gross Book Value, Adjusted Funds from Operations (“AFFO”) per unit 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 share of the fair value of investment properties as at December 31, 2020.
(4) Excludes furnished suites and suites taken offline for repositioning.
(5) Weighted average term to maturity and weighted average interest rate are for fixed rate debt only.
(6) Distribution rates in place as at December 31.
Letter to Unitholders
Dear Fellow Unitholders,
The COVID-19 pandemic made 2020 a challenging year. The virus sadly caused upheaval for many and our thoughts are
with those affected by loss, sickness or financial hardship. In an effort to contain the spread of the virus, governments at
every level have taken unprecedented measures including the implementation of travel bans, self-imposed quarantine
periods and other mandated closures. This has materially disrupted economic activity. Through it all, essential and front-
line workers kept our economy running. We offer our continued thanks and support to these everyday heroes.
Minto Apartment REIT (the “REIT”) demonstrated operational and financial resilience throughout the pandemic. In March
2020, Management initiated its infectious disease plan and adapted operational procedures and processes to prioritize
health and to limit the spread of COVID-19. The REIT’s staff demonstrated commitment and dedication in providing
essential services that ensured our residents continued to have safe and healthy homes.
In one of the worst economic years on record, the REIT delivered solid financial results. In 2020, the REIT’s adjusted funds
from operations per unit1 increased 2.2% compared to 2019. This increase allowed the REIT to increase its monthly cash
distributions by 3.4%, while still maintaining one of the most conservative payout ratios in the Canadian REIT sector. Over
the course of the year, the REIT reduced its financial leverage and finished the year with a strong liquidity position. Finally,
the REIT’s net asset value increased by 8.3% to $22.56 per unit.1
Despite the business challenges presented by COVID-19, the REIT continued to make progress on strategic initiatives in
2020. The REIT renovated 239 suites (157 at the REIT’s proportionate share) through its repositioning program. This
program, which makes targeted renovations to suites and common areas in several of the REIT’s properties, represents
the best risk-adjusted return on capital of all the REIT’s investment opportunities. At the end of 2020, the REIT had nine
properties in its repositioning program with 2,323 suites remaining to reposition.
1 Funds from operations per unit and net asset value per unit are non-IFRS financial measures. Refer to “Non-IFRS Measures” and
“Reconciliation of Non-IFRS Measures” in the Management’s Discussion and Analysis included in this Annual Report.
During the year, the REIT made its first investment in the Greater Vancouver market and fulfilled its strategic mandate to
build a presence in all of Canada’s six largest urban markets. On December 1, 2020, the REIT advanced an investment
loan to a joint venture developing Phase I of Lonsdale Square, a new residential rental project in North Vancouver.
The REIT has the option to purchase the completed project upon stabilization at 95% of its then appraised fair
market value. By participating as a lender to the development, the REIT generates accretive earnings during the
construction period without any exposure to construction risk.
Progress was also made on other REIT development initiatives. The REIT has an option to purchase a property called Fifth
and Bank in Ottawa, which is a mixed-use property currently under redevelopment. This project is on schedule and
completion is expected in early 2022. Certain other REIT properties support additional rental development and zoning,
municipal and other required approvals are being pursued for more than 1,000 new rental suites.
Government policies and restrictions implemented to limit the spread of COVID-19 created considerable disruption to
the residential rental market in Canada but the outlook for 2021 is positive. Immigration, a key driver of population growth
and housing demand in Canada, slowed when the Federal Government implemented border restrictions in 2020.
Management views this as a short-term disruption as the Federal Government has reiterated its commitment to
immigration and has increased its targets for New Canadians in 2021 and onward to catch up on immigration targets
that were missed in 2020. The favourable supply and demand dynamic for rental housing observed prior to COVID-19
will continue as Canadians are vaccinated and people go back to their workplaces, business travel and in person post-
secondary instruction resumes and as immigration levels return. The REIT is well positioned to capitalize on these
dynamics.
Sustainability and social responsibility have always been an important part of the Minto Group's culture and values and
this extends to the REIT. In 2020, the REIT’s steering committee on environmental, social and governance issues (“ESG”)
recommended updates to its ESG framework incorporating new and expanded initiatives and benchmarks. The updated
ESG framework was approved by the REIT’s Board of Trustees and its implementation is underway. We plan to initiate
reporting on the REIT’s performance against ESG targets and key performance indicators in the third quarter of 2021.
The Board of Trustees and Management are proud of how the staff of the REIT has responded and performed during the
pandemic. We will continue to prioritize the health of our residents and staff as we execute our business plan. We believe
that we will be able to deliver on growth and value creation in 2021. We thank our Unitholders for their confidence and
support.
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
Operating and Financial Measures
COVID-19 Response and Impact on the REIT
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, Capital Resources and Contractual 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 Judgments 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
Average Rent Per Square Foot
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
3
3
4
4
4
5
6
11
16
19
19
20
29
30
31
31
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34
34
36
38
40
40
40
41
47
49
50
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50
51
52
52
53
54
54
57
58
59
60
61
87
Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite 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 has
been further amended from time to time. The REIT owns and operates a portfolio of income-producing multi-residential rental
properties located in Canada.
The REIT's portfolio, referred to herein as the "Total Portfolio", consists of 29 (December 31, 2019 - 29) multi-residential rental
properties located in Ontario, Quebec and Alberta, comprising an aggregate of 5,082 (December 31, 2019 - 5,080) suites that
are wholly-owned by the REIT, 1,413 (December 31, 2019 - 1,413) suites that are 50% co-owned with institutional partners and
750 (December 31, 2019 - 750) suites that are 40% co-owned with an institutional partner.
The "Same Property Portfolio" consists of 24 multi-residential rental properties comprising an aggregate of 4,554 suites that are
wholly-owned by the REIT for comparable periods in 2020 and 2019. The Same Property Portfolio includes The Quarters in
Calgary acquired on January 7, 2019, as the exclusion of the impact of the first six days in January is not considered material. As
at December 31, 2020, the Same Property Portfolio makes up approximately 68% of the total fair value of the investment
properties.
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").
1Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Commitment to Environmental, Social and Governance Issues ("ESG")
Sustainability and social responsibility has been an important part of the Minto Group's culture and values for many years. The
Minto Group issued its first public report on its environmental performance and initiatives in 2009, expanded that report to
include health and safety performance in 2013 and further expanded the report in 2018 to include ESG generally. As a result of
that heritage, the REIT already addresses many ESG elements, including the following:
(i) Environmental
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programs to reduce carbon emissions, energy use, water use and solid waste
programs to improve air quality
programs to support natural systems
third party certification and verification
partnering with research laboratories and investing in new building automation
(ii) Social
•
talent attraction and retention
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competitive total rewards value offering for employees
employee relations, conditions of work
employee engagement, well-being
health and safety
tenant satisfaction and engagement
community engagement
community impact, corporate giving
partner engagement, supply chain management
(iii) Governance
•
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organizational structure with clear roles and accountabilities
business strategy
commitments and policies
objectives and targets
resources, including human resources and specialized skills, organizational infrastructure, technology and financial
resources
business systems, processes, programs
• monitoring and disclosure activities
• management oversight/review
•
highly qualified Board of Trustees
In 2020, the REIT's ESG steering committee engaged a third-party consultant and key business leaders to analyze gaps in the
existing ESG strategic framework and to evaluate and recommend new and expanded initiatives, priorities, benchmarks, key
performance indicators and target audiences to include in an updated ESG strategic framework. The process included a detailed
materiality assessment that reviewed and evaluated ESG impacts relevant to the REIT's business, as well as a gap analysis to
identify opportunities to strengthen the ESG strategic framework. The analysis captured the perspective of residents,
employees, suppliers, investors and community stakeholders. The updated ESG strategic framework was approved by the Board
of Trustees of the REIT on December 14, 2020. It is anticipated that annual reporting on the REIT's performance against ESG
targets and key performance indicators will begin in Q3 2021.
2Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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 from time to time (collectively, the "DOT"). A copy of the DOT 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);
(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 20% 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 20% 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 11, 2021, 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 years ended December 31,
2020 and 2019, prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB").
The REIT's Board of Trustees approved the content of this Management's Discussion and Analysis on March 11, 2021. 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.
3Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite 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
The REIT's financial statements are prepared in accordance with IFRS. Management's Discussion and Analysis 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), 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.
4Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
NOI is defined as revenue from investment properties less property operating costs, property taxes and utilities (collectively
referred to as "property operating expenses") 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 other non-IFRS measures are defined as follows:
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•
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•
"FFO per unit" is calculated as FFO divided by the weighted average number of Units of the REIT and Class B LP Units
("Class B LP Units") of Minto Apartment Limited Partnership (the "Partnership") 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 of the Partnership ("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 a full year of stabilized earnings, fees and other income and general and
administrative expenses from recently completed acquisitions, 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.
Operating and Financial Measures
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 for unfurnished suites - Represents the average monthly rent for occupied unfurnished
suites at the end of the period.
(ii) Occupancy for unfurnished suites - 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.
(iii) Average monthly rent per suite for furnished suites - Represents the average daily rent for furnished suites for the period
multiplied by 30.
(iv) Occupancy for furnished suites - The ratio of occupied furnished suites to the total furnished suites in the portfolio for the
period.
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 and 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 fixed rate mortgages, a variable rate mortgage fixed through an interest rate swap and Class C LP Units. The
REIT monitors the average term to maturity of its mortgages and Class C LP Units.
5Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
(iii) Weighted average interest rate on fixed rate debt - Calculated as the weighted average of the stated interest rates on the
outstanding balances of fixed rate mortgages, a variable rate mortgage fixed through an interest rate swap and Class C LP
Units. The REIT monitors the average cost of its mortgages and Class C LP Units.
COVID-19 Response and Impact on the REIT
Measures implemented to slow the spread of COVID-19, including border and business closures, have negatively impacted the
REIT's operating results, particularly in its furnished suite segment. Notwithstanding these challenges, in 2020, the REIT
delivered increases in both total portfolio revenue and NOI, which contributed to a 2.2% increase in AFFO per unit compared to
2019. This growth enabled the REIT to increase its monthly cash distribution by 3.4% and maintain a conservative payout ratio.
Notwithstanding near-term term challenges relating to COVID-19, Management maintains strong conviction in its business
model, long term strategy and outlook for the REIT.
Management believes that COVID-19 is a short-term event and not a fundamental change in market demand. The favourable
fundamentals that existed pre-COVID-19 will return once vaccines are more fully rolled out. These include:
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The benefits of urban living, such as shorter commutes, easy access to entertainment and transit
The housing crisis in Canada's major urban centres that existed prior to COVID will re-assert itself, particularly as
immigration picks up, post-secondary institutions return to on-campus learning, borders are re-opened and workers
return to the office (at least part-time)
•
The housing affordability gap continues to grow and will ultimately benefit the multi-residential rental sector
Management reiterates the following key principles:
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Our focus on institutional quality properties in urban settings
Real estate is a long term business, where investments are measured over the long-term, and hence maintaining a
focus on the longer term view by protecting rental rate, even at the expense of short term vacancy and dilution, and
investing value add capital in our portfolio
Creating value through sustained NOI and NAV growth over the medium and long-term while simultaneously allowing
for a steady and sustainable increase in the REIT's distribution capacity
Although Management believes that COVID-19 related challenges will remain throughout the first half of 2021, these short term
difficulties will pass quickly as we expect a gradual resumption of key drivers of demand for urban rental properties in the
second half of the year.
Operations
Toward the end of 2020, the number of COVID-19 cases surged across Canada, surpassing levels of daily new cases seen during
the onset of the pandemic. With the spike in COVID-19 cases, governments reintroduced or imposed stricter restrictions in an
attempt to limit further spread of the virus. The impacts of COVID-19 are continually evolving and the REIT continues to learn
and adapt to the new realities brought on by the global pandemic. The REIT’s first and foremost priority continues to be the
health and safety of its residents, employees, partners and communities. The REIT continues to take the necessary steps and
precautions in order to lessen the spread of COVID-19 and to prioritize good health. To that end, through continued hard work
and dedication, the REIT team continues to provide essential services so that its residents have safe and healthy homes.
In order to prioritize the health and safety of all, as well as preserve long term Unitholder value, the REIT has implemented its
infectious disease protocol and adapted certain operational processes and procedures to respond to the particular
circumstances created by COVID-19. These changes are summarized in this section, along with a business update on the
pandemic's impact on the REIT’s operations and strategy since our last update in November 2020.
The REIT implemented a number of initiatives to prioritize the health and well-being of its residents, employees and the
communities it operates in, including:
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Operating with limited on-site personnel and adhering to Health Canada guidelines on personal hygiene and social
distancing;
Closure of all fitness facilities;
Enhanced sanitization of shared surfaces and areas, including doors, railings, foyers and elevators;
Limiting leasing activities by appointment only, with the use of online tools prioritized;
6Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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Handling resident service requests for repairs and maintenance online or by phone;
Closure of the REIT’s corporate offices to outside visitors, with most staff working remotely; and
Ensuring that all critical vendors have business continuity plans in place and are following property guidelines for
personal protective equipment and social distancing.
The REIT experienced an increase in cleaning costs and expects this will continue while COVID-19 precautions are maintained.
The enhanced cleaning program, which focuses on high-touch areas and surfaces, requires vigilance but only adds modestly to
total property operating costs. This increase in cleaning costs for some areas is partially offset by reduced cleaning costs for
fitness facilities that remain closed.
The REIT has experienced a mix of partially offsetting changes in utility expenses and expects this trend to continue. As a result
of residents spending more time at home, usage has risen, which has been partially offset by the relaxation of peak pricing
policies by most utility providers. Over 90% of the REIT’s suites are sub-metered for electricity and close to 80% of its residents
pay their own electricity cost, which limits the REIT’s exposure to fluctuating electricity costs.
Overall, the REIT is not expecting any material changes to its NOI margin as the business continues to navigate through the
pandemic.
Lease Payments and Collections
Management continues to see the resiliency of the multi-residential rental business during this pandemic. Rental collections
have largely been consistent with pre-pandemic collection patterns.
A number of factors contribute to this result. The REIT’s focus on high quality urban locations in major markets attracts a higher
proportion of residents that are salaried workers and professionals. The job market also enjoyed steady monthly improvements
from April to November offset by a small drop in employment in December due to new stricter COVID-19 measures.
Notwithstanding the setback in December, Canada has gained back approximately three-quarters of the jobs lost in the early
stages of the pandemic. Government support programs have helped people and businesses who have been and continue to be
negatively impacted by lockdowns. These programs include the Canada Recovery Benefit, the Canada Wage Subsidy and
enhanced Employment Insurance benefits. These measures have contributed to steady rent collection.
Notwithstanding its strong collections, the REIT recognizes the continued burden placed on many of its residents related to the
decline in economic activity across Canada and this will likely continue to be the case given the active second wave of COVID-19.
At the outset of the pandemic, the REIT implemented a number of measures to help its residents cope with the sudden
economic shock.
First, the REIT offered payment plans for residents whose incomes were impacted by the pandemic where they could elect to
defer up to 50% of their rent for up to a three month period (April, May and June of 2020), with the deferred rent being paid
back over periods ranging from three to nine months. Only a small number of residents entered into deferral plans and the REIT
stopped offering them broadly in Q2 2020 due to limited demand. As at December 31, 2020, approximately 1.4% of the REIT's
residents were on deferral plans and the vast majority of these residents are current on their payments. The REIT will continue
to work with residents experiencing payment challenges on a case-by-case basis.
Second, the REIT suspended provincially regulated guideline rent increases and above guideline rent increases that were
scheduled to come into effect in April, May, June and July of 2020. This helped to mitigate the economic shock resulting from
the substantial government restrictions at the outset of the pandemic. Commencing August 1, 2020, as employment levels
began recovering from their lows in April, the REIT resumed regularly scheduled rental increases in accordance with applicable
rent control legislation in Ontario and Quebec.
However, the ability to apply guideline increases in Ontario will be further limited in 2021. The Province of Ontario enacted the
Helping Tenants and Small Businesses Act on October 1, 2020, freezing the residential rents for existing tenants for the 2021
calendar year. This temporary freeze on sitting rents will not impact the REIT's ability to negotiate market rents on new leases
for suites with tenant turnover or to apply above guideline increases for eligible capital expenses.
On January 12, 2021, the Government of Ontario, in connection with a new stay-at-home order to limit the spread of COVID-19,
announced changes to the rules for eviction. Landlords will still be able to make applications to the Landlord and Tenant Board
and hold hearings to proceed, but they will not be able to enforce eviction notices until further notice.
7Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
The REIT has a strong record of working with its residents on collections. Its bad debt expense averaged only 0.25% of revenues
prior to the pandemic. Although rental collections have been consistent with pre-pandemic collection patterns, the REIT's bad
debt expense has increased since the onset of the pandemic. Bad debt expense in Q4 2020 was 1.01% of revenue compared to
0.57% of revenue in Q3 2020. Although bad debt expense has increased, the absolute dollars are still very low. Bad debt
expense for the 12 months ended December 31, 2020 was 0.51% compared to 0.25% for the previous year. Despite strong
government income supports, workers in food service, hospitality and travel have been hit hard by COVID-19 related lockdowns
and restrictions. It is possible that the REIT’s bad debt expense may increase in future quarters due to the continued economic
impact of COVID-19; however, Management does not expect this change to materially impact the REIT’s financial results.
Leasing Activities and Turnover
The onset of the pandemic has altered the typical annual turnover pattern for the REIT's suites. In a typical year, the REIT
experiences higher turnover in Q2 and Q3 and lower turnover in Q1 and Q4. The REIT's experience in 2020, following the onset
of the pandemic, has not followed typical patterns. The REIT saw lower than expected levels of turnover in Q2 and Q3 and
higher than expected level of turnover in Q4. The graph below sets out the REIT's quarterly turnover rate for the past three
quarters with prior year comparative amounts.
There are a number of factors contributing to the change in turnover pattern. First, at the onset of the pandemic tenants were
naturally reluctant to make a move. Lockdowns and COVID-19 protocols also made leasing and move-in/move-out activities
more challenging. Over time, tenants became both more accustomed to and comfortable living under pandemic rules and
tenants who had deferred their moves in Q2 and Q3 undertook their moves later in the year. Second, many businesses
extended work-from-home policies indefinitely late in the summer prompting some tenants to consider making a change in
their living accommodations. Third, as the duration of the pandemic lengthens, so does the financial hardship for certain
tenants. Despite government income supports, some tenants are forced to move for financial reasons. Finally, some tenants are
responding to incentives offered in the market and are moving to take advantage of deals being offered by other landlords for
new leases.
There was an unseasonably high level of move-outs in Q4 2020 compared to the same period last year, which resulted in very
high levels of leasing activity. The REIT entered into 406 new leases in Q4 2020, which was a 35% increase in leasing activity
compared to 300 new leases in Q4 2019. This level of new leasing activity was a significant accomplishment given that tenants
generally prefer not to move during winter months and over the holidays. The average rental rate achieved in Q4 2020 was
2.1% higher than the expiring rental rate, compared to an average increase of 12.9% in Q4 2019. Despite the unprecedented
high level of move-outs in Q4 2020, the REIT achieved occupancy of 95.57% at December 31, 2020, down from 97.01% in Q3
2020. The REIT's objective was to maintain a balance between lease rate and occupancy without eroding long term value.
Management expects higher than normal turnover to continue into the first quarter of 2021, but it also expects that it will
continue realizing gains in rental rates on new leases compared to sitting rental rates, albeit at a lower rate than in pre-
pandemic quarters (see Section I, "Financial and Operating Highlights - Organic Growth — Gain-to-Lease" for further analysis of
organic growth potential). The REIT also expects to maintain slightly lower occupancy going into Q2 in order to capture what is
expected to be a stronger leasing season.
Quarterly Turnover Rates7.8%7.0%4.4%5.0%6.1%6.2%20192020Q2Q3Q44.0%6.0%8.0%8Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
The REIT generates incremental income by leasing approximately 3.2% of its suites on a furnished basis (232 suites out of 7,245
suites as at December 31, 2020). The demand for furnished suites has been impacted significantly by the COVID-19 crisis due to
reductions on business travel, corporate relocations, general restrictions on non-essential travel and the closing of the Canadian
border. Additionally, the REIT's furnished suites are also popular with the film and entertainment industries, both of which have
been negatively impacted by travel and border restrictions.
Management has responded firstly by adjusting furnished rental rates to capture the current demand in the market. In
response to a drop in demand from the corporate users due to COVID-19 restrictions, the REIT has increased its mix of
government and transient users. Both of these user groups are more price sensitive and Management has balanced rate and
occupancy to maximize revenue. Secondly, Management will continue to adjust its furnished suite inventory over time
depending on demand and changing market conditions. The REIT uses furnished suites as a tool to maximize yield at certain
properties and these suites can be easily moved in and out of the furnished suite program. The REIT will be transitioning its 43
furnished suites at its Roehampton property into a repositioning program and will be releasing these units as unfurnished suites
upon completion. Test suites were to be completed in Q4 2020, but this was delayed as the design work took longer than
expected. Demolition and construction work has been tendered and the rate of completion of the work will depend on the
ongoing level of government restrictions. The REIT plans to deliver repositioned suites to the market in the typically stronger
Q2/Q3 2021 leasing market, depending on availability of suites and any further delays caused by provincial restrictions. The
REIT will also transition suites in Calgary from furnished to unfurnished as leases expire. After completing these transitions, the
REIT's furnished suite offering will be comprised of approximately 180 suites at Minto Yorkville and Minto one80five, which
have historically been the REIT's strongest properties for furnished suites.
Furnished suite operations saw improvements in both occupancy and rate in Q4 2020. Furnished suite occupancy was 77.29% in
Q4 2020, which was up sequentially from 75.08% in Q3 2020 but lower on a year-over-year basis from 84.06% in Q4 2019.
Average monthly rent was $3,571 in Q4 2020, which increased sequentially from $3,460 in Q3 2020. Average monthly rent was
down from the $4,200 achieved in Q4 2019 reflecting the change in business mix noted above.
Furnished Suites Operating Metrics
As at
Furnished suites inventory
Average monthly rent
$
Occupancy
Liquidity
Q4 2020
232
3,571
$
77.29 %
Q3 2020
233
3,460
75.08 %
Q2 2020
239
3,956
$
65.00 %
Q4 2019
257
4,200
84.06 %
The REIT has sufficient liquidity and is well positioned to weather the current crisis. As at December 31, 2020, the REIT had total
cash and availability on its credit facility of $170,659 which provides sufficient liquidity to fund its obligations for the
foreseeable future. The REIT's liquidity ratio (total liquidity as a percentage of total debt) was 20.08% at December 31, 2020.
The REIT continues to maintain a conservative overall leverage position with a Debt-to-Gross Book Value ratio of 38.57% at
December 31, 2020 (39.63% at Q3 2020).
Capital Expenditures, Repositioning and Development
Since the lifting of government restrictions on construction activities in Ontario and Quebec in Q2 2020, the REIT has continued
repositioning renovation work, new value-enhancing capital expenditures and capital improvements and repairs that are critical
to the health and safety of its residents and essential to the maintenance and operation of the buildings. The REIT requires all
health and safety regulations to be respected during the performance of this work, which is scheduled to limit interaction
between trades and to allow workers to stay two meters apart at all times. Repositioning activities that are underway are
progressing at a slower pace in order to respect all required health measures on site. Looking forward to 2021, the REIT will take
advantage of the higher number of vacant suites available to increase repositioning activity but that the pace and length of time
it takes to do these may be longer than usual as a result of COVID-19 restrictions.
The REIT participates in the redevelopment of a property located at 99 Fifth Avenue, Ottawa, Ontario ("Fifth and Bank") by way
of a $30,000 investment loan. The loan bears interest at 6% per annum and provides the REIT with the option to purchase the
property upon stabilization at a 5% discount to its then appraised fair market value. Upon completion, the development will
comprise 163 residential rental suites along with 15,600 square feet of street front retail. The development schedule for this
project has not been impacted by COVID-19 restrictions and stabilization is expected in Q1 2022.
9Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
On December 1, 2020, the REIT advanced an $11,915 investment loan to a 50-50 joint venture between MPI and a subsidiary of
Darwin Properties Ltd. ("DPL"), a Vancouver area developer. The loan will assist in funding the development of a new mixed-use
multi-residential rental property, Phase 1 at Lonsdale Square, in the City of North Vancouver ("Lonsdale Square"). The financing
bears interest at 7%, which will accrue and be payable in full on the maturity of the loan. On stabilization of the property, which
is expected in the second half of 2023, the REIT will have the exclusive option to purchase the building at 95% of its then
appraised fair market value. The new development will comprise 113 rental suites across six stories set above 7,800 square feet
of retail-at-grade. Pursuant to the REIT’s strategic alliance agreement with MPI, the REIT will have the opportunity to participate
in future multi-residential phases of the Lonsdale Square project, currently estimated to be an additional 700 suites.
The REIT is in the final stages of obtaining development approvals to permit the construction of a new 225 suite multi-
residential rental property on surplus land at its Richgrove property. During Q4 2020, the REIT completed a contribution
agreement with the City of Toronto whereby the City will contribute funds towards the construction of 100 affordable rental
suites included in the new building and will also provide relief from development charges and certain other fees. The REIT
anticipates construction commencement in the second half of 2021, subject to receiving all required approvals to start
construction.
The REIT currently has two other ongoing intensification projects in Toronto in the pre-development stage. The REIT is working
through the site plan agreement with the City of Toronto for the intensification of its Leslie York Mills property, with 192 new
residential rental suites. The REIT has received a favourable ruling from the Local Planning Appeal Tribunal for the rezoning of
its property at High Park Village to allow for the addition of approximately 650 new residential rental suites. Management is in
the process of satisfying the City's approval conditions. Construction is not expected to begin before late 2022. The REIT
continues to pursue approvals on these projects, but may experience delays in dealing with municipal planning authorities as a
result of the pandemic. The REIT will provide further guidance on the status of these projects when municipal approval
timelines become more certain. The decision to proceed with construction of an intensification opportunity is also subject to
partner or co-owner approval, as applicable.
Valuation
Transaction activity in the multi-residential sector increased in the last two quarters of 2020 and provided market support for
higher valuations. Although COVID-19 introduces more uncertainty into the valuation of real estate, multi-residential rental
assets in Canada have proven to be resilient and are highly sought after. Several large multi-residential properties traded in the
second half of the year and these transactions were characterized by a large number of bidders and strong pricing.
Furthermore, the continuing availability of CMHC insured debt financing at historically low interest rates continues to support
valuation of multi-residential assets.
Fair value of residential properties is determined using the direct capitalization approach. Stabilized net operating income for
each property is capitalized at an appropriate capitalization rate and then a deduction is made for certain capital expenditures
that each property may require (which includes (i) any major maintenance capital expenditures, and (ii) capital expenditures
relating to a suite repositioning if the increased revenue from that suite repositioning is included in the stabilized net operating
income).
For the purpose of valuation, stabilized net operating income for each property is estimated by forecasting results for the
following 12-month period. Based on its experience operating during the pandemic, Management has made adjustments to the
turnover assumptions in its forecast.
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. As at December 31, 2020,
external appraisals were obtained for properties representing approximately 54% of the REIT's total carrying value for
investment property. Capitalization rates for many of the REIT's properties, especially those located in Ottawa, were adjusted
downward based on information in these appraisal reports and on capitalization rates observed in the market. The weighted-
average capitalization rate used at December 31, 2020 was 3.81% compared to 3.92% at both September 30, 2020 and
December 31, 2019.
Fair value for the commercial components of the REIT’s portfolio is determined using the discounted cash flow method. No
adjustments were made to forecasted cash flows or discount rates as a result of COVID-19.
10Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
In addition to any adjustments set out above, a reserve for potential COVID-19 impacts was taken at the portfolio level. This
reserve conservatively accounts for short-term potential effects of the pandemic, including, but not limited to, increased bad
debt expense, higher vacancy and promotion costs and disruptions in furnished suite operations. The amount of the reserve
taken as at December 31, 2020 is $2,681 compared to $3,837 at September 30, 2020 and $nil at December 31, 2019.
The REIT’s investment properties are recorded at a fair value of $2,138,101 at December 31, 2020, compared to $2,016,328 at
December 31, 2019.
Financial and Operating Highlights
Financial Performance
With the economy still in the midst of a pandemic, including a new surge in COVID-19 cases towards the end of 2020, the
financial performance of the REIT's portfolio has remained resilient. Collections remained strong and average rents have
continued to climb. Management offered rental deferral agreements to all residents in Q2 2020 and only a limited number of
residents participated. The majority of the residents that did participate are current on their payment plans. Targeted
marketing efforts and initiatives, including incentives and focused leasing promotions, helped maintain occupancy in the face of
rising turnover in the last quarter of the year. Notwithstanding these challenges, the REIT continues to generate rental revenue
gains on suite turnovers and new leases are set at market rates, albeit at a slower pace than before the pandemic.
Revenue, NOI, FFO and AFFO for the Total Portfolio were all higher for the three months and year ended December 31, 2020
compared to the same periods in 2019. This was primarily due to contributions from new property acquisitions and improved
performance of the REIT's unfurnished rentals. Average monthly rent per suite as at December 31, 2020 for the Same Property
Portfolio and the Total Portfolio increased by 2.9% and 2.8% respectively compared to 2019. The NOI margin for the Total
Portfolio increased to 62.9% for the year ended December 31, 2020, from 62.5% in 2019.
Revenue, NOI and NOI margin for the Same Property Portfolio for the three months and year ended December 31, 2020
decreased compared to 2019. These reductions are primarily a result of the declining contributions from the REIT's furnished
suite operations and lower occupancy in the unfurnished suite portfolio. Furnished suites have historically enhanced yield and
property returns, but continue to be negatively impacted by reduced corporate demand and travel caused by COVID-19
restrictions.
The REIT continued to execute its strategy to create organic growth by realizing on embedded rent in the portfolio and by
repositioning suites in properties where there is demand for renovated units. The REIT was able to realize, on average, an
increase of 8.1% on the 1,501 new leases it signed for the year, which represents annualized revenue growth of approximately
$1,912. The REIT also repositioned 239 suites during 2020, representing an average annual un-levered return of 9.4%. The REIT
also repositioned 56 suites during Q4 2020, representing an average annual un-levered return of 9.0%.
The REIT entered into 406 new leases in Q4 2020, compared to 300 new leases in Q4 2019 and achieved an average rental rate
that was 2.1% higher than the expiring rental rate. The REIT was unable to increase the rents significantly in all markets due to
the unseasonably high number of move-outs in Q4 2020 and promotions offered at competing properties.
NAV per unit was $22.26 as at December 31, 2020, 8.3% higher than the $20.56 recorded at December 31, 2019. This increase
was due to a combination of a slight decline in capitalization rates, mainly on Ottawa properties, and higher projected NOI.
In the REIT's continued effort to create value, two additional suites were created in Q4 2020 from excess common area space at
the Carlisle in Ottawa.
On July 21, 2020, the Minto one80five property was refinanced with a $94,797 CMHC-insured mortgage bearing interest at 2%
and a $23,928 conventional second mortgage bearing interest at 2.55%, both maturing on August 1, 2030. The proceeds were
used to repay the property's existing variable interest rate mortgage that was otherwise due to mature on September 30, 2020.
On December 8, 2020, the REIT filed a short form base shelf prospectus which allows for the issuance of securities for an
aggregate amount of up to $800,000. 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. This short form base shelf
prospectus replaces the short form base shelf prospectus filed on December 21, 2018, which expired in January 2021.
11Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
On November 30, 2020, the REIT advanced $11,915 to a limited partnership jointly owned by MPI and a subsidiary of DPL to
develop Lonsdale Square in North Vancouver, British Columbia. The loan bears interest at 7% and matures on May 30, 2024.
Interest accrues and is payable in full on maturity. In connection with this financing, the REIT will have the exclusive option to
purchase the property upon stabilization at a 95% of its then appraised fair market value as determined by independent and
qualified third-party appraisers.
Organic Growth — Gain-to-Lease
Despite the impacts of COVID-19, the REIT realized on organic growth for the three months ended December 31, 2020 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 $188. A summary of leasing activities and the gains to be realized from new leases signed for the three months
ended December 31, 2020 is set out in the table below:
Geographic Node
Toronto
Ottawa
Alberta
Montreal
New Leases
Signed1
79
181
87
59
Average Monthly
Expiring Rent
$1,867
1,578
1,319
1,526
Average Monthly
New Rent
$2,020
1,641
1,214
1,576
Percentage
Gain (Loss)-on-Turn
8.2%
4.0%
(8.0)%
3.3%
Annualized Gain
(Loss)-on-Turn2
$93
136
(58)
17
Total/Average
406
$1,551
$1,584
2.1%
$188
The REIT was able to realize an average gain-on-turn of 2.1% on the 406 new leases it signed in the fourth quarter of the year.
The REIT realized gains in all markets, with the exception of Alberta, with the majority of the contributions stemming from the
Toronto and Ottawa markets. In Alberta, where incentives continue to be widely used, 87 new leases were signed for an
average loss-on-turn of 8.0%.
The REIT typically experiences its peak leasing season during Q2 and Q3 and leasing activity generally slows during the late fall
and winter months. However, typical suite turnover patterns were impacted by COVID-19 and leasing activity in Q2 2020 and
Q3 2020 was lower than normal while leasing activity in Q4 2020 was much higher than normal to address a sharp increase in
tenants moving out during the quarter (for more details see Section I, "COVID-19 Response and Impact on the REIT - Leasing
Activities and Turnover"). Management adjusted asking rents slightly in Q4 2020 to maintain a balance between rental growth
and occupancy. This adjustment resulted in a lower overall gain-to-lease than was realized in previous quarters.
Realized Leasing Gains and Average Monthly Rent
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.
8.4%11.5%16.9%12.9%13.6%9.1%9.4%2.1%$1,417$1,439$1,478$1,579$1,599$1,609$1,613$1,623Realized Gain-on-New Leases (%)Average Monthly Rent ($)Q1 2019Q2 2019Q3 2019Q4 2019Q1 2020Q2 2020Q3 2020Q4 2020$1,050$1,200$1,350$1,500$1,650—%5.0%10.0%15.0%20.0%12Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Below is a summary of leasing activities and the gains realized from new leases signed for the year ended December 31, 2020:
Geographic Node
Toronto
Ottawa
Alberta
Montreal
Total/Average
New Leases
Signed1
309
691
292
209
1,501
Average Monthly
Expiring Rent
$1,931
1,469
1,273
1,673
$1,513
Average Monthly
New Rent
$2,154
1,642
1,217
1,780
$1,636
Percentage
Gain (Loss)-on-Turn
11.6%
11.8%
(4.4)%
6.4%
8.1%
Annualized Gain
(Loss)-on-Turn2
$522
1,435
(197)
152
$1,912
The annualized gains realized from new leases signed in the last four quarters are as follows:
Fiscal Quarter
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Total/Average
New Leases
Signed¹
353
339
403
406
1,501
Average Monthly
Expiring Rent
$1,551
1,469
1,489
1,551
$1,513
Average Monthly
New Rent
$1,762
1,602
1,630
1,584
$1,636
Percentage
Gain-on-Turn
13.6%
9.1%
9.4%
2.1%
8.1%
Annualized Gain-
on-Turn²
$780
467
477
188
$1,912
Management continually reviews market conditions and updates its estimates of market rent for the properties in its portfolio.
In response to unseasonably high move-outs and leasing challenges brought on by COVID-19 in Q4 2020, Management reduced
its estimates of average market rent in all markets except Alberta. These reductions are a result of the near term challenges
brought on by COVID-19, which include government-imposed lockdowns of businesses, border restrictions (which affect the
flow of immigration and foreign students) and the physical challenges of showing suites and executing transactions while
maintaining health measures established to limit the spread of the virus. Management believes that these disruptions and
challenges are temporary and that there will be a recovery in market rents in the second half of 2021 (see Section I, "Outlook").
We anticipate that the rollout of vaccines, anti-viral medications and improved testing in 2021 will materially reduce the
economic and physical disruptions caused by COVID-19.
Management also monitors market conditions for competing product types, principally new condominium suites being offered
as rentals in the City of Toronto, and considers this information when setting its estimate of monthly market rent. The
availability of condo rentals increased in Q4 2020 and their average rental rates declined on a year-over-year basis.
Notwithstanding the improving affordability of condo rentals, the REIT's suites continue to compare favourably on a size and
rental rate basis. The average size of the REIT's Toronto suites is 800 square feet compared to 703 square feet for the average
condo rental and the rental rate for the REIT's Toronto suites is $2.32 per square foot compared to $2.95 per square foot for the
average condo rental.3
Factoring in the new estimates of market rent, the estimated gain-to-lease potential on existing tenancies for the REIT's
portfolio as at December 31, 2020 is as follows:
Geographic Node
Total Suites4
Average Monthly
In-Place Rent/Suite
Toronto
Ottawa
Alberta
Montreal
Total/Average
1,736
2,777
618
1,436
6,567
$1,858
1,511
1,235
1,923
$1,623
Management's
Estimate of Monthly
Market Rent
$2,001
1,621
1,270
2,114
$1,745
Percentage
Gain-to-Lease
7.7%
7.3%
2.8%
9.9%
7.6%
Annualized
Estimated Gain-to-
Lease2
$1,927
3,684
258
2,180
$8,049
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.
3 Data for condo rentals is from Urbanation Q4 2020 Condo Rental Report.
4 Excludes 232 furnished suites, 306 vacant suites, 109 suites offline for repositioning and 31 units offline for enhanced turns.
13Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Management currently estimates that the portfolio has annualized embedded potential gain-to-lease of approximately $8,049,
compared to $12,678 at Q3 2020 and $16,181 in Q4 2019. Regardless of this decline, Management continues to realize on gain-
to-lease opportunities as suites turnover and expects to continue doing so going forward. As noted above (and more fully in
Section I, "Outlook"), Management expects market rents to increase in the second half of 2021 and that the total gain-to-lease
potential will increase.
The ability of the REIT to realize the embedded rent is dependent on the number of residents that move-out in its portfolio and
overall market conditions. 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.
The REIT has a good track record realizing on the embedded rent in its portfolio. The following charts summarize the gains the
REIT has realized each quarter since its IPO, as well as Management's estimate of the embedded rent potential remaining in the
portfolio.
Gains Achieved on New Leases
Embedded Rent Potential
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 test suites in order to gauge market demand for different improvements or combination of
improvements. Test suites also assist Management in mitigating capital risk by confirming and refining cost estimates, value
engineering 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 as suites turn over. The rate at
which Management can complete the repositioning plan depends on the rate of suite turnover. Additionally, the government
restrictions in effect with regard to the pandemic are also impacting the pace at which the REIT's repositionings can be
performed.
The REIT has active repositioning programs at: Minto Yorkville, Leslie York Mills and High Park Village in Toronto; Castle Hill and
Carlisle in Ottawa; and Rockhill, Le 4300 and Haddon Hall in Montreal. The REIT temporarily halted repositioning of suites at its
Edmonton properties in Q2 2020 as lower rental rates are negatively impacting returns on repositioning activities. The one suite
repositioned in Edmonton represents a suite renovation commenced prior to freezing the program and leased in Q4 2020.
7.3%8.0%8.4%11.5%16.9%12.9%13.6%9.1%9.4%2.1%Q32018Q42018Q12019Q22019Q32019Q42019Q12020Q22020Q32020Q42020—%4.0%8.0%12.0%16.0%8.5%8.2%9.7%13.6%16.5%15.0%13.5%12.3%11.8%7.6%Q32018Q42018Q12019Q22019Q32019Q42019Q12020Q22020Q32020Q42020—%4.0%8.0%12.0%16.0%14Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
A summary of the repositioning activities for the three months and year ended December 31, 2020 is set out below1.
Property
Minto Yorkville
Leslie York Mills
High Park Village
Edmonton properties2
Carlisle
Castle Hill
Rockhill
Le 4300
Haddon Hall
Total
Ownership
Interest
100%
50%
40%
100%
100%
100%
50%
100%
100%
Suites Repositioned and Leased
Year ended
December 31, 2020
8
62
34
13
33
26
61
2
—
Three months ended
December 31, 2020
3
19
10
1
13
3
7
—
—
Remaining
Suites to
Reposition
45
298
358
74
129
107
862
259
191
Total Suites in
the Program
99
409
407
171
191
176
934
261
191
Proportion
Complete
55%
27%
12%
57%
32%
39%
8%
1%
—%
56
239
2,323
2,839
18%
Rockhill, Montreal
Haddon Hall, Montreal
Le 4300, Montreal
While COVID-19 has created delays to the construction schedules, the repositionings at both Haddon Hall and Le 4300 are
progressing and pre-leasing is underway for suites to be delivered in the first quarter of 2021. Eight suites have been leased at
rental rates slightly higher than underwritten pro-forma rental rates.
The following includes a summary of the costs and returns from the repositioning activities for the periods presented:
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, 2020
Year ended
December 31, 2020
56
37
38,988
3,512
$
$
9.0 %
239
157
37,189
3,496
9.4 %
$
$
Management targets a return in the range of 8% to 15% on suites renovated and leased.
The REIT is exploring repositioning opportunities at four other wholly-owned properties in the portfolio, with a combined count
of nearly 600 suites with repositioning potential.
1 All suite counts, including co-owned properties, are presented at 100% rather than the REIT's ownership share.
2 Edmonton repositioning program is currently on hold due to market conditions.
15Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
The reduction in demand for furnished suites due to COVID-19 presented an opportunity to accelerate repositioning at the
Roehampton property in Toronto by converting its furnished suites to unfurnished as suites turnover. Test suites were to be
completed in Q4 2020, but this was delayed as the design work took longer than expected. Repositioning work has
subsequently been delayed due to provincial restrictions on construction activities relating to COVID-19. The construction of
test suites is now expected to commence in Q1 2021. The REIT plans to deliver repositioned suites to the market in the typically
stronger Q2/Q3 2021 leasing market, depending on availability of suites and any further delays caused by provincial restrictions.
The REIT's repositioning program presents the best risk-to-return profile of all investment opportunities, generating NAV
growth at the expense of modest, near-term earnings dilution. Repositioning programs are flexible, with relatively small,
discrete capital commitments and short project durations that are easily accelerated or slowed as market conditions dictate.
The REIT's high volume of repositioning programs generates a number of efficiencies through volume purchasing, repeatable
design concepts and material selection, and transferable lessons learned from other projects.
Enhanced Turns
In addition to its repositioning program, the REIT took advantage of vacancies at certain properties to make improvements to
suites on turnover in excess of the typical work completed on a regular turnover (defined as an enhanced turn). An enhanced
turn involves replacing carpets with modern flooring, as well as improvements to trim and fixtures and new appliances in some
instances. The scope of work is narrower than in the repositioning program but early results are showing unlevered returns
consistent with the REIT's repositioning program. The timing to complete the enhanced turn depends on the condition of the
suite and the specific work being performed, but typically ranges from two to four weeks. In Q4 2020, 20 suites were leased
after going through enhanced turns and the annualized rental rate increases generated returns in excess of 8% on cost. Another
31 suites in buildings located in the Parkwood Hills area of Ottawa (Frontenac, Stratford, Grenadier, Huron and Seneca) were
undergoing enhanced turns at December 31, 2020.
New Development
A block of 32 suites at the Skyline property, destroyed by fire in March 2017, were rebuilt by MPI and delivered to the REIT in
Q3 2020. The suites are undergoing lease-up, with 22 suites leased and occupied at the end of 2020. For the disclosures made in
this Management's Discussion and Analysis, all 32 suites are excluded from the suite count. Full lease-up is expected in Q1 2021
at which time the due payment will be made by the REIT to MPI.
Outlook
In the current operating environment, Management is focused on the health and safety of its residents, employees and
business partners and on limiting the spread of COVID-19. Notwithstanding the challenges resulting from COVID-19,
Management has been able to operate safely while continuing to realize on growth 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; and
Capitalizing on our strategic alliance with MPI and its affiliates by accessing its pipeline of assets and deal flow.
In 2021, growth is also expected to come from:
• 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
Management believes the operating environment and tenant demand will improve over the course of 2021. The development
of effective COVID-19 vaccines, along with various anti-viral medications and new rapid testing tools will accelerate the
transition back to normalcy in day-to-day living and business operations. The transition will progress in phases as the vaccine
rollout proceeds. The Federal Government expects that all Canadians that wish to be vaccinated will have the opportunity by
September 2021.
Management expects that government imposed restrictions will begin to ease with employment improving, immigration
volumes picking up and on-campus or hybrid instruction resuming at post-secondary institutions for the fall term. Economists
are forecasting economic growth to recover as service industries, which were the hardest hit by restrictions, can come back
online quickly as restrictions are eased.
16Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
The roll out of vaccines and improved testing will reignite demand for housing from students and new immigrants, which are
two important groups driving demand for rental housing. Students have shown a preference for in-person learning and strong
demand from students in post-secondary programs is expected to return over the course of the year. The Federal Government
has reiterated its commitment to immigration and has increased its targets for new permanent residents over the next three
years in order to catch up on the immigration that was delayed in 2020 due to border closures. The Federal Government's new
targets, along with natural growth, should push net population growth to a rate of over 500,000 people per year for the next
three years, returning to historically high population growth last reached in 2019 before the onset of the pandemic.
The favourable supply and demand fundamentals that existed prior to the pandemic have not gone away. The affordability gap
between rental housing and home ownership has in fact gotten wider in most Canadian cities. The supply of new housing
remains constrained and inelastic to housing demand and population growth. As population growth resumes in 2021, rental
housing demand is expected to strengthen and Management expects occupancy rates and market rents for its portfolio will
increase.
Organic Growth Opportunities
The REIT expects to continue to see organic growth on turnover of suites in the near term in all markets. Management expects
to realize on the gap between market rent and average sitting rent on new leases as suites turnover and rent is adjusted to
current market rates. The average gain-to-lease opportunity for the portfolio is 7.6% (as set out in the detailed gain-to-lease
table in the previous section).
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 has an extensive repositioning program
with more than 2,300 suites eligible for repositioning. The REIT's ability to execute its repositioning program is highly dependent
on the turnover of our tenants and market conditions at the time suite renovations are completed. Government restrictions
with regard to the pandemic impacted the pace of the REIT's renovation program. Subject to the availability of suites through
turnover and potential provincial restrictions, the REIT expects to reposition approximately 250 to 300 suites in 2021.
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 in Toronto. During the
quarter, the REIT executed a contribution agreement with the City of Toronto to build affordable housing on surplus land at its
Richgrove property and is in the process of obtaining rental construction financing from CMHC.
All three development opportunities remain subject to municipal and investment partner approvals (as applicable). The REIT
continues to pursue these opportunities but may experience additional delays as it deals with local municipalities and faces
limitations with the facilitation of public meetings during the COVID-19 crisis.
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 Management believes 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.
Exploring Strategic Acquisitions in Major Canadian Urban Centres and Capitalizing on our Relationship
with MPI and Affiliates
The REIT is continuously exploring opportunities to acquire additional properties or to dispose of existing properties if the
proceeds can be deployed more productively in other investments. Acquisition efforts are focused on major urban markets in
Canada, with an emphasis on properties that present opportunities with embedded gain-to-lease potential, repositioning,
intensification or a combination of all these opportunities. 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, Ottawa 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.
17Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
During Q4 2020, the REIT entered into an agreement to advance an investment loan to a 50-50 joint venture between MPI and
a subsidiary of DPL to assist in funding the development Lonsdale Square in North Vancouver. The REIT has the option to
purchase the property upon stabilization, which is expected in the latter half of 2023, at 95% of its then appraised fair market
value. Pursuant to the REIT’s strategic alliance agreement with MPI, the REIT will have the opportunity to participate in future
multi-residential phases of the Lonsdale Square project, currently estimated to be an additional 700 suites.
The changes in the geographic distribution of the suites within the REIT's portfolio and geographic breakdown of the investment
properties valuation are depicted below:
Suites by Region (%)1
As at December 31, 2020
Valuation of Investment Properties by Region
As at December 31, 2020
Total Suite Count: 6,089
Total Fair Market Value: $2,138,101
l Ottawa l Toronto l Calgary l Edmonton l Montreal
1 For co-owned properties, reflects the REIT's co-ownership only.
4%7%22%50%17%2%5%32%42%20%18Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Section II - Financial Highlights and Performance
Key Performance Indicators
The REIT's operating results are affected by seasonal variations and other factors, including the impacts of COVID-19. 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 for the Total Portfolio, Same
Property Portfolio and Same Property Portfolio - excluding furnished suites. The information in the table below and throughout
this Management's Discussion and Analysis is on a Total Portfolio basis, except where specifically stated otherwise:
Three months ended December 31,
Year ended December 31,
2020
2019
Change
2020
2019
Change
Operating
Number of properties
Total suites1
Average monthly rent per suite
Occupancy
Average monthly rent per suite -
Same Property Portfolio
Occupancy - Same Property Portfolio
Financial
Revenue
NOI2
NOI margin2
Net income and comprehensive
income
Revenue - Same Property Portfolio
NOI2 - Same Property Portfolio
NOI margin2 - Same Property Portfolio
Revenue - Same Property Portfolio -
excluding furnished suites
NOI2 - Same Property Portfolio -
excluding furnished suites
NOI margin2 - Same Property Portfolio
- excluding furnished suites
FFO2
FFO per unit2
AFFO2
AFFO per unit2
AFFO Payout Ratio2
Distribution per unit
Distribution yield based on Unit
closing price
$
$
$
$
$
$
$
$
$
$
$
$
$
$
29
7,245
1,623
95.57 %
1,523
95.06 %
30,930
18,946
61.3 %
23,010
22,242
13,671
61.5 %
20,281
12,735
62.8 %
12,022
0.2036
10,459
0.1771
64.23 %
0.1138
$
$
$
$
$
$
$
$
$
$
$
$
$
29
7,243
1,579
98.01 %
1,480
97.76 %
—
2
2.8 % $
(244) bps
2.9 % $
(270) bps
29
7,245
1,623
95.57 %
1,523
95.06 %
$
$
29
7,243
1,579
98.01 %
—
2
2.8 %
(244) bps
1,480
97.76 %
2.9 %
(270) bps
29,868
18,613
3.6 % $ 124,929
1.8 % $
78,620
$ 104,438
65,297
$
62.3 %
(100) bps
62.9 %
62.5 %
19,708
23,191
14,529
16.8 % $ 179,638
(4.1) % $
90,218
(5.9) % $
56,021
62.6 %
(110) bps
62.1 %
20,604
12,899
(1.6) % $
82,578
(1.3) % $
51,939
62.6 %
20 bps
11,737
0.1997
10,212
0.1738
2.4 % $
2.0 % $
2.4 % $
1.9 % $
63.30 %
90 bps
$
0.1100
3.5 % $
62.9 %
49,981
0.8465
43,733
0.7407
60.25 %
0.4463
$
$
$
$
$
$
$
$
$
19,966
91,505
57,187
62.5 %
80,928
50,320
62.2 %
39,632
0.8414
34,142
0.7248
58.56 %
$
0.4225
19.6 %
20.4 %
40 bps
799.7 %
(1.4) %
(2.0) %
(40) bps
2.0 %
3.2 %
70 bps
26.1 %
0.6 %
28.1 %
2.2 %
169 bps
5.6 %
2.23 %
1.90 %
33 bps
2.19 %
1.81 %
38 bps
1 Includes 2,163 (December 31, 2019 - 2,163) suites co-owned with institutional partners.
2 Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
19Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
As at
Leverage
Debt-to-Gross Book Value ratio1
Debt Service Coverage ratio1
Debt-to-EBITDA ratio1
Weighted average term to maturity on fixed rate debt
Weighted average interest rate on fixed rate debt
December 31, 2020
December 31, 2019
Change
38.57 %
1.91x
11.51x
5.81
2.94 %
39.30 %
1.93x
10.72x
5.97
3.15 %
73 bps
(0.02)x
(0.79)x
(0.16) years
21 bps
Valuation
NAV1
NAV per unit1
$
$
1,314,030
22.26
$
$
1,213,879
20.56
$
8.3 %
1.70
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 years ended December 31, 2020 and 2019:
Same Property Portfolio
Revenue from investment properties
Property operating costs
Property taxes
Utilities
NOI1
NOI margin1
$
$
Three months ended December 31,
Year ended December 31,
2020
22,242
4,311
2,283
1,977
13,671
2019
23,191
4,519
2,441
1,702
14,529
$
$
% Change
2020
2019
(4.1) % $
4.6 %
6.5 %
(16.2) %
(5.9) % $
90,218
16,856
9,825
7,516
56,021
$
$
91,505
17,271
9,686
7,361
57,187
61.5 %
62.6 %
(110) bps
62.1 %
62.5 %
% Change
(1.4) %
2.4 %
(1.4) %
(2.1) %
(2.0) %
(40) bps
Same Property Portfolio - Excluding Furnished Suites
Revenue from investment properties2 $
Property operating costs
Property taxes
Utilities
NOI1
NOI margin1
$
Three months ended December 31,
Year ended December 31,
2020
20,281
3,585
2,108
1,853
12,735
2019
20,604
3,792
2,270
1,643
12,899
$
$
62.8 %
62.6 %
% Change
(1.6) % $
5.5 %
7.1 %
(12.8) %
(1.3) % $
20 bps
2020
82,578
14,320
9,216
7,103
51,939
2019
80,928
14,574
9,088
6,946
50,320
$
$
62.9 %
62.2 %
% Change
2.0 %
1.7 %
(1.4) %
(2.3) %
3.2 %
70 bps
1 Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
2 Includes rental revenue from the lease of unfurnished suites, commercial space, parking revenue and other property income.
20Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Total Portfolio
Revenue from investment properties
Property operating costs
Property taxes
Utilities
NOI3
NOI margin3
General and administrative expenses
Finance costs - operations
Fair value loss (gain) on:
Investment properties
Class B LP Units
Interest rate swap
Unit-based compensation
Fees and other income
Net income and comprehensive
income
Net Operating Income
Three months ended December 31,
Year ended December 31,
$
$
2020
30,930
6,142
3,162
2,680
18,946
61.3 %
1,598
8,330
2019
29,868
5,794
3,105
2,356
18,613
62.3 %
1,717
8,077
(61,231)
47,587
(174)
239
(413)
(21,885)
12,068
(729)
71
(414)
% Change
2020
3.6 % $ 124,929
(6.0) %
23,221
(1.8) %
13,346
(13.8) %
9,742
1.8 %
78,620
(100) bps
6.9 %
(3.1) %
(179.8) %
(294.3) %
76.1 %
(236.6) %
(0.2) %
62.9 %
6,634
33,767
(78,701)
(63,298)
2,429
(249)
(1,600)
2019
$ 104,438
19,755
11,016
8,370
65,297
62.5 %
5,607
30,132
(93,216)
104,241
(879)
325
(879)
% Change
19.6 %
(17.5) %
(21.2) %
(16.4) %
20.4 %
40 bps
(18.3) %
(12.1) %
15.6 %
160.7 %
376.3 %
176.6 %
82.0 %
$
23,010
$
19,708
16.8 % $ 179,638
$
19,966
799.7 %
Same Property Portfolio NOI excluding furnished suites was 1.3% lower and 3.2% higher for the three months and year ended
December 31, 2020 respectively compared to the same period in 2019, with revenue being the main driver of the change.
For the three months ended December 31, 2020, Same Property Portfolio revenue excluding furnished suites was 1.6% lower
compared to the same period in 2019. The decline in revenue for the quarter was a result of lower occupancy and Management
opting to preserve rents by leveraging promotions.
The revenue for the Same Property Portfolio excluding furnished suites was 2.0% higher for the year ended December 31, 2020
compared to the same period in 2019 as a result of realizing gain-to-lease and achieving higher revenue from repositioned
suites. This was partially offset by reduced revenues as a result of higher move-outs and lower occupancy. Same Property
Portfolio NOI excluding furnished suites was also higher due to a decrease in property operating expenses as a result of reduced
salaries and benefits and lower repairs and maintenance expenses partially offset by an increase in insurance premiums. On an
annual basis, the unfurnished suites have performed well despite the impacts of COVID-19.
Same Property Portfolio NOI for the three months ended December 31, 2020 was 5.9% lower compared to the same period in
2019. Three properties, Minto Yorkville, Minto one80five and 150 Roehampton, comprise most of the unfavourable variance in
the REIT’s Same Property Portfolio NOI. The vast majority of the REIT’s furnished suites are located in these three core urban
properties, which have been hit hardest by COVID-19 related border closures, business lockdowns and work-from-home
requirements. The REIT’s Same Property Portfolio NOI, excluding these three properties, increased 1.4% in Q4 2020 compared
to Q4 2019. Same Property Portfolio NOI for the year ended December 31, 2020 was 2.0% lower compared to the previous year
primarily due to lower occupancy.
Total Portfolio NOI for the three months and year ended December 31, 2020 increased 1.8% and 20.4%, compared to the
previous year mainly as a result of higher revenues from the five investment property acquisitions completed after March 31,
2019, comprising a total of 2,691 suites (including 2,163 suites co-owned with institutional partners), partly offset by lower
revenue from furnished suites.
3 Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
21Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Revenue from Investment Properties
Same Property Portfolio
Rental revenue
Unfurnished suites
Furnished suites
Commercial leases
Parking revenue
Other property income
Total Portfolio
Rental revenue
Unfurnished suites
Furnished suites
Commercial leases
Parking revenue
Other property income
Three months ended December 31,
Year ended December 31,
2020
2019
% Change
2020
2019
% Change
18,194
1,961
557
788
742
$
22,242 $
18,370
2,587
535
788
911
23,191
(1.0) %
(24.2) %
4.1 %
— %
(18.6) %
74,130
7,640
2,165
3,146
3,137
(4.1) % $
90,218 $
72,456
10,577
2,110
3,021
3,341
91,505
2.3 %
(27.8) %
2.6 %
4.1 %
(6.1) %
(1.4) %
Three months ended December 31,
Year ended December 31,
2020
2019
% Change
2020
2019
% Change
26,379
1,975
557
1,064
955
$
30,930 $
24,714
2,614
535
968
1,037
29,868
6.7 %
(24.4) %
4.1 %
9.9 %
(7.9) %
106,925
7,746
2,165
4,253
3,840
84,670
10,657
2,110
3,370
3,631
3.6 % $
124,929 $
104,438
26.3 %
(27.3) %
2.6 %
26.2 %
5.8 %
19.6 %
Revenue from investment properties consists of rental revenue from residential lease agreements relating to unfurnished suites
and furnished suites, commercial lease agreements, parking revenue and other property income. Other property income
consists of ancillary revenue from laundry facilities, telecommunication commission revenue, membership fee revenue, other
fee income from tenants and recoveries of utility charges, operating costs and property taxes.
Rental Revenue from Unfurnished Suites
Same Property Portfolio rental revenue from unfurnished suites for the three months ended December 31 was 1.0% lower than
the same period in 2019, primarily as a result of reduced occupancy and increased promotions, partially offset by an increase in
average rents. For the year ended December 31, 2020, revenue from unfurnished suites was 2.3% higher than the previous year
primarily due to increases in rents on new leases and repositioned suites partially offset by lower occupancy, turnover and
increased promotions. A total of 296 and 1,089 new leases of unfurnished suites in the Same Property Portfolio were signed for
the three months and year ended December 31, 2020, respectively, resulting in an average annualized rent increase of 1.7%
and 8.1%, respectively. A sharp increase in tenants moving out in Q4 2020 and weak demand for urban locations stemming
from the pandemic resulted in a lower average annualized rent increase in Q4 2020.
Total Portfolio rental revenue from unfurnished suites for the three months and year ended December 31, 2020 was 6.7% and
26.3% higher than the previous year primarily due to additional revenues from investment property acquisitions completed
subsequent to March 31, 2019. A total of 406 and 1,501 new leases of unfurnished suites in the Total Portfolio were signed for
the three months and year ended December 31, 2020, respectively, resulting in an average annualized rent increase of 2.1%
and 8.1%, respectively, driven mainly by the Ontario properties.
22Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Rental performance metrics as at December 31, 2020 and 2019 are as follows:
As at December 31,
Number of suites1
Average monthly rent per suite
Occupancy
Same Property Portfolio
2020
4,554
1,523
95.06 %
$
2019
4,552
1,480
97.76 %
$
$
Total Portfolio
2020
7,245
1,623
95.57 %
$
2019
7,243
1,579
98.01 %
Same Property Portfolio average monthly rent per suite of $1,523 as at December 31, 2020 was $43 per month higher than the
previous year, primarily due to realized gain-to-lease on suite turnover across Ontario.
Total Portfolio average monthly rent per suite of $1,623 as at December 31, 2020 was $44 per month higher than the previous
year, primarily due to the increase in Same Property Portfolio rents, along with the acquisition of two investment properties in
Montreal with higher average rental rates. As at December 31, 2020, the average monthly rent from these acquisitions was
$2,411.
Revenue and Occupancy by Quarter
(Same Property Portfolio)
Notwithstanding the fact that 406 leases were signed during the quarter (35% higher than Q4 2019), occupancy decreased on
unseasonably high move-outs. Occupancy trended down mainly due to the economic uncertainties and lower rental demand
caused by the pandemic. With Canada being an economy that depends heavily on immigration for productivity and growth, the
restrictions on immigration have impacted the demand and supply for rental suites in all markets. To add to that, work from
home conditions and affordability have caused tenants to move from urban centres into suburban areas. The Alberta market,
already suffering from weaker leasing markets as a result of the decline in oil and gas commodity prices, was further impacted
by the pandemic-related market conditions. Management opted to preserve value by holding rents and leveraging promotions
and spot pricing to manage conversion and occupancy during the quarter.
Rental Revenue from Furnished Suites
For the three months and year ended December 31, 2020, Same Property Portfolio rental revenue from furnished suites was
24.2% and 27.8% lower than the previous year. For the three months and year ended December 31, 2020, Total Portfolio rental
revenue from furnished suites was 24.4% and 27.3% lower than the previous year due to lower occupancy and average monthly
rent for furnished suites as a result of the pandemic. Occupancy was lower year-over-year mainly due to the significant impact
on demand for furnished suites by reductions in business travel and corporate relocations and general restrictions on non-
essential travel triggered by the COVID-19 crisis. The REIT's furnished suites are also popular with the film and entertainment
industries which suspended filming during the pandemic as a result of the on-going government restrictions.
1 Total Portfolio suites includes 2,163 (December 31, 2019 - 2,163) suites co-owned with institutional partners.
Revenue ($000s)Occupancy22,13522,83023,34923,19122,82122,61522,54022,24298.67%99.00%98.46%97.76%97.24%96.86%96.79%95.06%RevenueOccupancyQ1 2019Q2 2019Q3 2019Q4 2019Q1 2020Q2 2020Q3 2020Q4 2020$15,000$17,500$20,000$22,500$25,00090%93%95%98%100%23Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Management has responded to these challenges by adjusting furnished rental rates to capture the current demand in the
market. In response to a drop in demand from the corporate users due to COVID-19 restrictions, the REIT has increased its mix
of government and transient users. Both of these user groups are more price sensitive and Management has balanced rate and
occupancy to maximize revenue. Notwithstanding the year-over-year decline in furnished suite revenue, there has been
sequential improvement in occupancy in the second half of 2020 and an increase in average monthly rent in Q4 2020.
The table below outlines select performance metrics for the furnished suites:
Suites
Average monthly rent
Occupancy
Rental Revenue from Commercial Leases
Q4 2020
232
3,571
77.29 %
Q3 2020
233
3,460
75.08 %
Q2 2020
239
3,956
64.50 %
For the three months and year ended December 31, 2020, Same Property Portfolio and Total Portfolio rental revenue from
commercial leases were 4.1% and 2.6% higher than the previous year, mainly due to higher operating cost recoveries which
include property taxes, insurance, landscaping, snow removal and other costs.
Parking Revenue
For the three months ended December 31, 2020, parking revenue was consistent with previous year. For the year ended
December 31, 2020, parking revenue for the Same Property Portfolio increased by 4.1%, primarily as a result of parking rate
increases compared to the previous year, as well as new revenues from paid visitor parking.
For the three months and year ended December 31, 2020, Total Portfolio parking revenue increased by 9.9% and 26.2%
primarily due to additional revenue of $273 and $1,104 from investment property acquisitions completed subsequent to March
31, 2019.
Other Property Income
For the three months and year ended December 31, 2020, the decrease of 18.6% and 6.1% in Same Property Portfolio other
property income was mainly as a result of lower fitness membership fee revenue due to the closure of the fitness center at one
property and lower party room rentals due to COVID-19. This was partially offset by an increase in utility recovery revenue due
to sub-metering and an increase in telecommunication commission revenue.
For the three months ended December 31, 2020, the Total Portfolio other property income decreased by 7.9% mainly as a
result of lower revenue from fitness center, guest suites and party room rentals. For the year ended December 31, 2020, the
decrease in revenue from the above noted items was offset by an increase in operating cost recoveries, telecommunication
revenue, laundry and storage revenue.
Property Operating Costs
Same Property Portfolio
Three months ended December 31,
Year ended December 31,
2020
2019
% Change
2020
2019
% Change
Property operating costs
$
4,311 $
4,519
4.6 % $
16,856 $
17,271
2.4 %
Total Portfolio
Three months ended December 31,
Year ended December 31,
2020
2019
% Change
2020
2019
% Change
Property operating costs
$
6,142 $
5,794
(6.0) % $
23,221 $
19,755
(17.5) %
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.
24Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
For the three months and year ended December 31, 2020, property operating costs for the Same Property Portfolio were
favourable compared to the previous year primarily due to lower repairs and maintenance, lower furnished suites expenses as a
result of reduced occupancy and lower salaries and wages, partly offset by an increase in insurance premiums and higher bad
debt expense.
For the three months and year ended December 31, 2020, property operating costs for the Total Portfolio were 6.0% and 17.5%
higher than the previous year, primarily due to the additional costs incurred relating to the investment properties acquired
subsequent to March 31, 2019. For the three months and year ended December 31, 2020, Total Portfolio property operating
costs were 19.9% and 18.6% of revenue, compared to 19.4% and 18.9% for the previous year.
Property Taxes
Same Property Portfolio
Three months ended December 31,
Year ended December 31,
2020
2019
% Change
2020
2019
% Change
Property taxes
$
2,283 $
2,441
6.5 % $
9,825 $
9,686
(1.4) %
Total Portfolio
Three months ended December 31,
Year ended December 31,
2020
2019
% Change
2020
2019
% Change
Property taxes
$
3,162 $
3,105
(1.8) % $
13,346 $
11,016
(21.2) %
Property taxes for the Same Property Portfolio of $2,283 for the three months ended December 31, 2020 were lower as
compared to the same period in 2019, mainly as a result of refunds received from successful property tax assessment appeals
for certain properties in Ottawa, partially offset by a notable increase in property taxes for properties located in Calgary.
Property taxes for the Same Property Portfolio of $9,825 for the year ended December 31, 2020 were higher as compared to
the previous year mainly as a result of changes in assessed values and changes in tax rates, with a notable increase in taxes for
properties located in Calgary, partially offset by refunds received from successful property tax assessment appeals for certain
properties in Ottawa.
For the three months and year ended December 31, 2020, Total Portfolio property taxes were higher as compared to the
previous year primarily due to the investment property acquisitions completed subsequent to March 31, 2019. Total Portfolio
property taxes were 10.2% and 10.7% of revenue for the three months and year ended December 31, 2020, compared to 10.4%
and 10.5% for the previous year.
Utilities
Same Property Portfolio
Electricity
Natural gas
Water
Three months ended December 31,
Year ended December 31,
2020
797 $
580
600
1,977 $
2019
% Change
607
519
576
(31.3) % $
(11.8) %
(4.2) %
1,702
(16.2) % $
2020
3,277 $
1,656
2,583
7,516 $
2019
3,177
1,654
2,530
7,361
% Change
(3.1) %
(0.1) %
(2.1) %
(2.1) %
$
$
25Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Total Portfolio
Electricity
Natural gas
Water
Three months ended December 31,
Year ended December 31,
2020
976 $
1,021
683
2,680 $
2019
758
964
634
2,356
% Change
(28.8) % $
(5.9) %
(7.7) %
(13.8) % $
2020
3,958 $
2,866
2,918
9,742 $
2019
3,476
2,211
2,683
8,370
% Change
(13.9) %
(29.6) %
(8.8) %
(16.4) %
$
$
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 costs are dependent upon seasonality-driven usage, as well as utility rates and
commodity prices.
Same Property Portfolio utilities for the three months and year ended December 31, 2020 were $275 and $155 unfavourable
compared to the same periods in 2019 primarily due to an increase in electricity and water consumption and rates as well as an
increase in natural gas rates from higher carbon taxes, partially offset by savings from the implementation of building
automation systems and green initiatives at certain properties. There was also a one-time electricity refund of $146 for a
Toronto property received in Q4 2019.
Higher utilities for the Total Portfolio were primarily as a result of the investment property acquisitions and changes in Same
Property Portfolio utilities mentioned above. Total Portfolio utilities for the three months and year ended December 31, 2020
represent 8.7% and 7.8% of revenue, compared to 7.9% and 8.0% for the previous year.
General and Administrative Expenses
General and administrative expenses relate 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 expenses of $1,598 for the three months ended December 31, 2020 were 6.9% lower compared
to the previous year, primarily due to lower travel expenses, professional service costs and lower back-office expenses resulting
from the expiration of Rockhill's temporary third party management contract. This was partially offset by the increase in
amount charged under the ASA by $141 due to growth in the REIT's portfolio and the $179 increase in Unit-based compensation
for executives from additional Deferred Units granted subsequent to Q3 2019.
The general and administrative expenses of $6,634 for the year ended December 31, 2020 were 18.3% higher compared to the
previous year mainly due to an increase of $848 in the amount charged under the ASA and an increase of $869 in Unit-based
compensation for executives from additional Deferred Units granted subsequent to Q3 2019. This was partially offset by lower
acquisition research costs, travel expenses, professional services costs and lower back-office expenses incurred in connection
with Rockhill, as noted above.
Finance Costs - Operations
Interest expense on mortgages
Interest expense and standby fees on
credit facility
Amortization of financing charges
Amortization of mark-to-market
adjustments
Interest income
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,
2020
4,281
288
165
(194)
(520)
4,020
2,591
1,719
8,330 $
2019
3,637
% Change
(17.7) %
709
101
(195)
(438)
3,814
2,504
1,759
8,077
59.4 %
(63.4) %
0.5 %
18.7 %
(5.4) %
(3.5) %
2.3 %
(3.1) % $
2020
16,735
1,838
548
(770)
(1,653)
16,698
10,162
6,907
33,767 $
2019
12,255
% Change
(36.6) %
2,619
316
(778)
(541)
13,871
9,195
7,066
30,132
29.8 %
(73.4) %
1.0 %
205.5 %
(20.4) %
(10.5) %
2.3 %
(12.1) %
26Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Finance costs comprise interest expense on secured debt; interest expense and standby fees on the revolving credit facility;
amortization of financing charges and mark-to-market adjustments on the debt; and distributions on Class B LP Units and Class
C LP Units; offset by interest income.
Finance costs for the three months and year ended December 31, 2020 were higher by $253 and $3,635 compared to the
previous year, primarily due to additional interest expense and higher amortization of financing charges from new mortgage
financings secured by Minto one80five and Haddon Hall, as well as additional distributions arising from both increases in the
distribution rate on and the issuance of Class B LP Units. The increase in finance costs was partially offset by interest income
earned on loan advances to related parties for construction of Fifth and Bank in Ottawa and the development of Lonsdale
Square in North Vancouver and lower interest expense on the credit facility in 2020 compared to 2019.
Fair Value Gain on Investment Properties
Fair value of residential 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 forecasted NOI for each property, reduced by an estimate of future capital expenditures. It is not possible to forecast
with certainty the duration or full scope of the economic impact of COVID-19 on the REIT's business and operations, both in the
short and long term. Any long-term effects on market rents, occupancy, turnover and future demand would ultimately impact
the underlying valuation of investment properties.
As a result of COVID-19 measures, as at December 31, 2020, stabilized forecasted net operating income for each property was
adjusted to reflect slightly reduced annual turnover and lower incremental earnings from suite repositionings. In addition, a
valuation reserve was taken for potential near-term income impacts from the pandemic including changes in bad debt expense,
vacancy, promotion costs and furnished suite operations. The stabilized capitalization rates were updated to reflect current
investment property market conditions and were supported by external appraisals.
The fair value gain on investment properties was a result of movement in the following:
Forecast NOI
Capitalization rates
Capital expenditure reserve
COVID-19 reserve
Three months ended December 31,
Year ended December 31,
$
$
2020
10,400 $
62,771
(13,096)
1,156
61,231 $
2019
26,780 $
8,574
(13,469)
—
21,885 $
2020
51,697 $
59,442
(29,757)
(2,681)
78,701 $
2019
113,345
8,686
(28,815)
—
93,216
The increase in forecast NOI for the year ended December 31, 2020 was primarily driven by properties located in Ottawa, which
have generated higher rental rates on turnover, partially offset by margin erosion in Alberta driven by the continued economic
impact of the pandemic and oil crisis, compounded by increased property taxes for multi-residential assets. Changes in the
capitalization rates for the year ended December 31, 2020 are predominantly driven by compression in the Ottawa market as a
result of comparable investment property market activity in the three months ended December 31, 2020. The increased capital
expenditures reserve is primarily due to ongoing capital expenditure requirements and the advancement of various
repositioning programs.
Fair Value Loss (Gain) on Class B LP Units
The Class B LP Units are owned by 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, 2020, the Unit price increased from $18.28 to $20.37, resulting in a fair value loss of
$47,587. For the same period in 2019, the Unit price increased from $22.62 to $23.15, resulting in a fair value loss of $12,068.
For the year ended December 31, 2020, the Unit price decreased from $23.15 to $20.37, resulting in a fair value gain of
$63,298. For the previous year, the opening Unit price was $18.50 and the closing Unit price was $23.15, resulting in a fair value
loss of $104,241.
27Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Fair Value Loss (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%. The swap is
remeasured at each reporting date using discounted cash flow analysis.
For the three months and year ended December 31, 2020, the REIT recognized a fair value gain of $174 and a fair value loss of
$2,429 respectively. For the same periods in 2019, the REIT recognized a fair value gain of $729 and $879. The fair value gain or
loss is a result of changes in variable interest rate from period to period.
Fair Value Loss (Gain) 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.
During the quarter, the REIT experienced a fair value loss of $239 resulting from changes in the Unit price for Deferred Units
outstanding at December 31, 2020 and Deferred Units issued during quarter. For the three months ended December 31, 2020,
the Unit price increased from $18.28 to $20.37. For the same period in 2019, the Unit price increased from $22.62 to $23.15,
resulting in a fair value loss of $71.
For the year ended December 31, 2020, the Unit price decreased from $23.15 to $20.37 resulting in a fair value gain of $249.
For the previous year, the Unit price increased from $18.50 to $23.15, resulting in a fair value loss of $325.
Fees and Other Income
Fees and other income represent revenue from asset, project and property management services provided by the REIT in
connection with three properties co-owned with institutional partners.
For the three months and year ended December 31, 2020, the REIT earned $413 and $1,600 in management service fees
compared to $414 and $879 for the previous year. The increase in management service fee for the year is mainly due to the
timing of the acquisitions of these co-owned properties. Two properties were acquired in May 2019 and the third property was
acquired in August 2019.
28Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Summary of Quarterly Results
Total assets
Investment properties
Total liabilities
Total non-current liabilities
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
Distribution per unit
Q3 2020
Q2 2020
Q4 2020
Q1 2019
$ 2,203,284 $ 2,123,708 $ 2,085,271 $ 2,166,295 $ 2,050,300 $ 1,714,194 $ 1,526,199 $ 1,289,194
$ 2,138,101 $ 2,063,520 $ 2,036,213 $ 2,020,748 $ 2,016,328 $ 1,698,218 $ 1,508,469 $ 1,278,415
$ 1,353,060 $ 1,292,367 $ 1,306,479 $ 1,396,196 $ 1,363,525 $ 1,277,351 $ 1,076,782 $ 1,051,237
$ 1,243,761 $ 1,202,911 $ 1,141,192 $ 1,219,829 $ 1,306,124 $ 1,229,491 $ 1,028,543 $ 1,022,940
Q3 2019
Q4 2019
Q2 2019
Q1 2020
$
$
$
$
$
$
$
$
$
30,930 $
18,946 $
61.3%
31,155 $
20,161 $
64.7%
31,319 $
20,024 $
63.9%
31,525 $
19,489 $
61.8%
29,868 $
18,613 $
62.3%
27,639 $
17,588 $
63.6%
24,796 $
15,786 $
63.7%
22,135
13,310
60.1%
23,010 $
12,022 $
0.2036 $
10,459 $
0.1771 $
6,718 $
64.23%
0.1138 $
56,630 $
13,183 $
0.2233 $
11,619 $
0.1968 $
6,642 $
57.16%
0.1125 $
12,054 $
12,659 $
0.2144 $
11,097 $
0.1879 $
6,496 $
58.54%
0.1100 $
87,944 $
12,117 $
0.2052 $
10,558 $
0.1788 $
6,495 $
61.52%
0.1100 $
19,708 $
11,737 $
0.1997 $
10,212 $
0.1738 $
6,464 $
63.30%
0.1100 $
(29,889) $
10,808 $
0.2280 $
9,385 $
0.1980 $
5,101 $
54.35%
0.1075 $
48,816 $
9,769 $
0.2146 $
8,445 $
0.1855 $
4,665 $
55.24%
0.1025 $
(18,699)
7,318
0.1993
6,100
0.1661
3,764
61.70%
0.1025
The REIT's operating results are affected by seasonal variations and other factors, including the impacts of the pandemic. 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. The best
performing quarters in any given year are typically the second and third quarters, where stronger leasing demand and higher
turnovers provide an opportunity to realize the gain-to-lease potential.
The improvement in quarterly performance for 2019 was primarily the result of acquisitions, as well as increases in Same
Property Portfolio revenue due to higher average monthly rent and repositionings. From the end of Q1 2020 and throughout
the year, performance was impacted by the government restrictions and uncertain market and economic conditions arising
from the COVID-19 outbreak. In addition to the reduced occupancy for the Total Portfolio, furnished suites which have
historically enhanced yield and property returns were negatively impacted by business and travel restrictions and contributed
to the decrease in revenue.
1 Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
29Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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
Distribution per unit
NAV1
NAV per unit1
December 31, 2020
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,203,284
2,138,101
1,353,060
1,243,761
124,929
78,620
62.9 %
179,638
49,981
0.8465
43,733
0.7407
26,351
60.25 %
0.4463
1,314,030
22.26
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
December 31, 2019 December 31, 20182
1,206,925
$
1,197,811
$
948,673
$
917,317
$
42,475
$
26,110
$
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 %
0.4225
1,213,879
20.56
$
$
$
$
$
$
$
$
$
61.5 %
49,390
16,197
0.4411
13,235
0.3604
7,445
56.25 %
0.2028
644,151
17.54
The REIT's operations commenced on July 2, 2018 when the REIT acquired a portfolio of 22 multi-residential rental properties
with a valuation of $1,123,000, comprising 4,279 suites across Ottawa, Toronto, Calgary and Edmonton. By the end of 2018, the
REIT had added another property comprising 70 suites to its portfolio and recognized organic growth through suite
repositioning and gain realized on new leases. Acquisitions continued in 2019 with six new properties added to the portfolio:
two in Toronto, three in Montreal and one in Calgary. Repositioning and gain-to-lease continued to be realized providing
significant organic growth to the REIT. Despite the challenges presented in 2020 with the onset of the pandemic, the REIT
continues to generate rental revenue gains on suite turnovers and new leases are set at market rates, albeit at a slower pace
than before the pandemic.
1 Refer to Section IV, "Reconciliation of Non-IFRS Measures" for a reconciliation of performance indicators not defined by IFRS.
2 Based on operations for the 183-day period from July 2, 2018 to December 31, 2018.
30Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Section III - Assessment of Financial Position
Investment Properties
The following table summarizes the changes in investment properties:
Opening balance
Additions
Acquisitions of investment properties
Capital expenditures
Fair value gain
Other
Closing balance
Capital Expenditures
December 31, 2020
$
2,016,328 $
December 31, 2019
1,197,811
—
41,467
78,701
1,605
702,393
22,908
93,216
—
$
2,138,101 $
2,016,328
The REIT has a capital improvement program in place 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 three main categories: development expenditures, value-enhancing
capital expenditures and maintenance capital expenditures.
Three months ended December 31,
Year ended December 31,
Total expenditures
Development expenditures
Value-enhancing capital expenditures
$
Building improvements
Suite upgrades
Maintenance capital expenditures
Maintenance capital expenditures per
suite
2020
13,350 $
1,417
6,647
3,314
9,961
1,972
2019
8,853 $
—
5,683
1,342
7,025
1,828
2020
41,467 $
12,087
15,775
8,442
24,217
5,163
2019
22,908
—
9,790
8,188
17,978
4,930
908
$
324 $
309 $
848 $
Development and value-enhancing renovations are intended to generate NAV accretion, long term AFFO accretion and increase
tenant satisfaction, however value-enhancing capital expenditures tend to be AFFO dilutive in the short term, owing to vacancy
during renovation.
Development expenditures are a component of the REIT's growth and value-creation strategy. These include projects which add
to the existing suite count of the REIT through intensification or redevelopment of existing assets in order to deliver strong NAV
growth to Unitholders. Prior to its initial public offering in 2018, the REIT acquired the Skyline Maisonettes property in Ottawa.
This property was damaged by a fire in March 2017, which destroyed 32 suites. The re-construction of this block was
substantially completed in the third quarter of 2020 and the building is going through its lease-up period. The REIT’s operating
results will continue to be positively impacted as the lease-up is completed.
31Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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
Management's Discussion and Analysis under Section I, "Financial and Operating Highlights - Value Creation - Repositioning"
and Section I, "Outlook". The REIT’s active repositioning programs for the year ended December 31, 2020 included Minto
Yorkville, Leslie York Mills and High Park Village in Toronto, the Edmonton Properties, Castle Hill and Carlisle in Ottawa, and
Rockhill, Le 4300 and Haddon Hall in Montreal. The REIT temporarily halted repositioning of suites at its Edmonton properties
as lower rental rates are negatively impacting returns on repositioning activities as a result of the pandemic.
Maintenance capital expenditures include expenditures that are incurred in order to maintain the existing earning capacity of
the REIT’s investment properties. Any exterior work is highly dependent on favourable weather conditions and as a result, a
significant portion of the exterior work is performed between the months of May and September and therefore actual
maintenance capital expenditures in a given quarter may not be indicative of future quarters.
The actual maintenance capital expenditures for the three months and year ended December 31, 2020 were $1,972 and $5,163,
or $324 and $848 per suite, primarily related to maintenance of roofs and building exterior and mechanical, plumbing and
electrical work at various buildings, including common areas. This was lower than the planned expenditure of $900 per suite as
projects were impacted by restrictions imposed by government regulations and the scheduling and availability of trades owing
to COVID-19.
For 2021, Management expects to spend $900 per suite annually on average on maintenance. Restrictions imposed towards the
end of 2020 as a result of the spike in COVID-19 cases started easing in February 2021. The REIT will continue to monitor
changes in government regulations and adapt its plans accordingly. Re-imposition of restrictions might affect the REIT's ability
to carry out certain capital projects and meet its targets in 2021.
Valuation
Fair value for residential properties is determined using the direct capitalization approach. Estimated 12 month stabilized
forecasted 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.
As at December 31, 2020, the REIT adjusted its internal valuation model to incorporate the uncertainties associated with
COVID-19, which includes the addition of a portfolio-level reserve meant to account for the near-term income losses resulting
from the global pandemic.
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
Ottawa, Ontario
Toronto, Ontario
Edmonton, Alberta
Calgary, Alberta
Montreal, Quebec
Weighted-average capitalization rate
December 31, 2020
December 31, 2019
Low
4.00%
3.25%
4.25%
4.15%
3.50%
High
4.25%
3.75%
4.25%
4.25%
3.75%
3.81%
Low
4.00%
3.25%
4.25%
4.15%
3.43%
High
4.75%
3.75%
4.25%
4.25%
3.75%
3.92%
Class B LP Units
The Class B LP Units 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.
As at December 31, 2020, there were 22,769,073 (December 31, 2019 - 22,769,073) Class B LP Units outstanding.
32Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Class C LP Units
The Class C LP Units 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. Due to the nature of such distributions, the Class C LP Units are classified as
financial liabilities.
As at December 31, 2020, there were 22,978,700 (December 31, 2019 - 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, 2019 - 3.16%) and mature at various dates between 2023 and 2030.
Secured Debt
Secured debt includes mortgages and the REIT's revolving 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 2.85% (December 31, 2019 - 3.14%) and mature at various dates between 2021 to 2030. Included
within the fixed rate mortgages is a variable rate mortgage that is fixed at 3.38% through an interest rate swap.
On March 31, 2020, the REIT obtained a $100,000 variable interest mortgage secured by Minto one80five, with an interest rate
of bankers' acceptance plus 25 bps maturing on September 30, 2020. On July 21, 2020, this mortgage was fully repaid with
proceeds from a CMHC insured mortgage of $94,797 bearing interest of 2.00% and maturing on August 1, 2030, and a
conventional mortgage of $23,928 bearing interest of 2.55% with the same maturity. Proceeds of $11,928 from the
conventional financing were held in escrow until certain conditions are satisfied. On December 4, 2020, $3,370 of the funds
held in escrow were released.
On November 20, 2019, in connection with the acquisition of Haddon Hall, the REIT secured conventional mortgage financing of
$45,000, bearing interest at 3.16% and maturing on December 1, 2030. On April 24, 2020, CMHC insurance was obtained for the
mortgage, with an additional $1,151 borrowed to finance CMHC premiums. The CMHC insured mortgage bears interest at
2.67% and matures on December 1, 2030.
The conventional mortgage assumed on the acquisition of Kaleidoscope was fully repaid on June 1, 2020 and subsequently
replaced on June 29, 2020 with a CMHC insured mortgage of $14,258, bearing interest at 1.56% and maturing on July 15, 2030.
The REIT has a committed revolving credit facility of $200,000 (December 31, 2019 - $200,000) 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, 2020, $31,948 was utilized (December 31, 2019 - $91,009) and the remaining amount
of $168,052 (December 31, 2019 - $108,991) was available in accordance with its terms and conditions. The credit facility bears
interest at bankers' acceptance rate plus 175 bps or prime plus 75 bps and as at December 31, 2020, the weighted average
variable interest rate was 2.25% (December 31, 2019 - 3.72%).
Units
The REIT’s DOT authorizes the issue of an unlimited number of Units. As at December 31, 2020 and 2019, there were
36,274,839 Units outstanding with a carrying value of $631,434.
Distributions
On August 11, 2020, the Board of Trustees approved a 3.4% increase to the REIT's annual distribution from $0.4400 per Unit to
$0.4550 per Unit. The increase was effective for the REIT's August 2020 cash distribution paid on September 15, 2020.
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.
For the year ended December 31, 2020, distributions to Unitholders of $16,189 (December 31, 2019 - $10,799) were declared
based on approved monthly distributions of $0.03667 per Unit for the months of January to July and $0.03792 per Unit for the
months of August to December (December 31, 2019 - $0.03416 per Unit for the months of January to July and $0.03667 per
Unit for the months of August to December).
33Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite 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
Mortgages1
Credit facility
Unitholders' equity
December 31, 2020
December 31, 2019
$
$
463,806 $
217,524
599,413
31,948
1,312,691
850,224
2,162,915 $
527,104
222,702
487,876
91,009
1,328,691
686,775
2,015,466
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, 2020, 77% (December 31, 2019 - 64%) of the REIT's total debt is CMHC insured and
approximately 96% (December 31, 2019 - 89%) is fixed rate including variable rate debt fixed through an interest rate swap.
The REIT uses a prudent amount of debt financing in its capital structure. Pursuant to the REIT’s DOT, 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 and
liquidity as a percentage of total debt are calculated as follows:
As at
Class C LP Units
Mortgages1
Credit facility
Total debt
Total assets
Debt-to-Gross Book Value ratio
Total liquidity
Liquidity as a percentage of total debt
$
December 31, 2020
December 31, 2019
$
219,885
598,079
31,948
849,912
2,203,284
38.57 %
170,659
20.08 %
225,537
489,307
91,009
805,853
2,050,300
39.30 %
110,919
13.76 %
The REIT continues to maintain a conservative overall leverage position with a Debt-to-Gross Book Value ratio of 38.57% at
December 31, 2020.
1 Includes funds held in trust in connection with Minto one80five financing.
34Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite 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
General and administrative expenses
Fees and other income
Impact on NOI of stabilized earnings from acquisitions
EBITDA
Total debt, net of cash
Debt-to-EBITDA ratio
$
December 31, 2020
78,620 $
(6,634)
1,600
73,586
—
73,586
847,305
11.51 x
December 31, 2019
65,297
(5,607)
879
60,569
14,410
74,979
803,925
10.72 x
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, 2020, the weighted average term to maturity on the
REIT’s fixed rate debt was 5.81 (December 31, 2019 - 5.97) years and the weighted average interest rate on fixed rate debt was
2.94% (December 31, 2019 - 3.15%). The contractual payments under the REIT’s debt financing is summarized in the table
below.
Principal Repayments
Principal at Maturity
Mortgages
Class C LP
Units
Mortgages
Credit facility
Class C LP
Units
$
12,134 $
11,584
10,344
8,759
8,354
7,536
25,919
5,341 $
5,510
5,298
4,319
3,067
1,283
2,925
22,075 $
87,164
47,620
48,186
22,743
32,651
254,344
31,948 $
—
—
—
—
—
—
— $
—
44,936
46,180
60,474
—
38,191
Year
2021
2022
2023
2024
2025
2026
Thereafter
Total
71,498
104,258
108,198
107,444
94,638
41,470
321,379
% of
Total
8.4 %
12.3 %
12.7 %
12.7 %
11.1 %
4.9 %
37.9 %
Interest
Rate2
2.48 %
3.22 %
3.05 %
3.04 %
3.19 %
3.38 %
2.71 %
$
84,630 $
27,743 $
514,783 $
31,948 $
189,781 $
848,885
100 %
As of December 31, 2020, current liabilities of $109,299 (December 31, 2019 - $57,401) exceeded current assets of $15,854
(December 31, 2019 - $8,396), resulting in a net working capital deficit of $93,445 (December 31, 2019 - $49,005). Current
liabilities as of December 31, 2020 include $31,948 payable for the credit facility which matures on July 3, 2021 at which point
the REIT intends to refinance it. The REIT's immediate liquidity needs are met through cash-on-hand, cash flow from operations,
property-level debt and availability on its credit facility. As of December 31, 2020, liquidity was $170,659 (December 31, 2019 -
$110,919) consisting of cash of $2,607 (December 31, 2019 - $1,928) and $168,052 (December 31, 2019 - $108,991) 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.
On December 8, 2020, the REIT filed a short form base shelf prospectus, allowing for the issuance, from time to time, of Units,
debt securities and subscription receipts, or any combination thereof, for an aggregate amount of up to $800,000. This
prospectus is effective for a 25-month period from the date of issuance. 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. This short form base shelf prospectus replaces the short form base shelf prospectus filed on December 21, 2018,
which expired in January 2021.
2 Weighted average interest rates for maturing mortgages, credit facility and Class C LP Units.
35Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Cash Flows
The REIT held a cash balance of $2,607 as at December 31, 2020 (December 31, 2019 - $1,928). The sources and use of cash
flow for the three months and years ended December 31, 2020 and 2019 are as follows:
Operating activities
Financing activities
Investing activities
Three months ended December 31,
Year ended December 31,
$
2020
24,652 $
983
(26,033)
2019
25,884 $
287,474
(313,910)
2020
69,857 $
(17,939)
(51,239)
2019
53,830
557,685
(610,479)
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:
$
$
$
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
Add: interest received
Less: interest paid
Less: distributions paid
Excess of cash provided by operating
activities over total distributions and
interest paid
Three months ended December 31,
Year ended December 31,
2020
23,010 $
2,591
25,601
(6,717)
2019
19,708 $
2,504
22,212
(5,970)
2020
179,638 $
10,162
189,800
(26,277)
2019
19,966
9,195
29,161
(19,084)
18,884 $
16,242 $
163,523 $
10,077
24,652 $
578
(6,291)
18,939
(6,717)
25,884 $
—
(5,642)
20,242
(5,970)
69,857 $
1,775
(25,286)
46,346
(26,277)
12,222
14,272
20,069
53,830
—
(20,869)
32,961
(19,084)
13,877
19,994
Distributions declared
$
6,718 $
6,464 $
26,351 $
The REIT has net income and comprehensive income in excess of distributions paid for the three months and year ended
December 31, 2020. 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, Unit-based compensation and an interest rate swap.
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, 2020, cash provided by operating activities was in excess of distributions and
interest paid.
36Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Cash provided by (used in) financing activities
Proceeds from mortgage financing
$
Net (repayments) proceeds on credit
facility
Proceeds from issuance of Units, net of
issue costs
CMHC premiums and deferred financing
costs paid
Principal repayments on mortgages
Distributions paid on various classes of
Units
Interest paid
Three months ended December 31,
Year ended December 31,
2020
3,370 $
2019
45,000 $
2020
225,576 $
2019
158,360
15,112
23,384
(59,061)
55,084
—
234,264
—
399,436
(30)
(3,150)
(8,028)
(6,291)
(101)
(2,189)
(7,242)
(5,642)
$
983 $
287,474 $
(5,117)
(122,597)
(31,454)
(25,286)
(17,939) $
(3,293)
(6,930)
(24,103)
(20,869)
557,685
Key transactions affecting cash flow from financing activities for the three months and year ended December 31, 2020 included:
•
•
On June 1, 2020, the REIT paid off its mortgage associated with the Kaleidoscope property in Calgary. On June 29, 2020, the
REIT obtained a new CMHC insured mortgage secured by Kaleidoscope of $14,258, bearing interest at 1.56% and maturing
on July 15, 2030.
Two new mortgage financings were obtained on July 21, 2020, secured by Minto one80five: a CMHC-insured mortgage of
$94,797 bearing interest of 2.00% and maturing on August 1, 2030; and a conventional mortgage of $23,928 bearing
interest of 2.55% with the same maturity. Proceeds from these mortgages were used to repay the existing $100,000
variable rate mortgage on the property obtained on March 31, 2020.
•
The 3.4% increase in distributions on Units and Class B LP Units effective from August 2020.
Cash used in investing activities
Capital additions to investment properties
Loan advances to related parties
Interest received
Acquisition of investment properties
Three months ended December 31,
Year ended December 31,
$
$
2020
(11,999) $
(14,612)
578
—
(26,033) $
2019
(8,006) $
(19,727)
—
(286,177)
(313,910) $
2020
(30,826) $
(22,188)
1,775
—
(51,239) $
2019
(19,179)
(19,727)
—
(571,573)
(610,479)
Included in cash flows from investing activities for the three months and year ended December 31, 2020 are capital
expenditures on investment properties and advances of funds to related parties for the construction of Fifth and Bank in
Ottawa and the development of Lonsdale Square in North Vancouver, partially offset by interest received on the loan advances
made to related parties.
37Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Reconciliation of Non-IFRS Measures
FFO and AFFO
FFO and AFFO are used for evaluating operating performance and are computed as follows1:
Net income and comprehensive income
Distributions on Class B LP Units
Fair value loss (gain) on:
Investment properties
Class B LP Units
Interest rate swap
Unit-based compensation
Three months ended December 31,
Year ended December 31,
2020
2019
2020
2019
$
23,010
2,591
$
19,708
2,504
$
179,638
10,162
$
19,966
9,195
(61,231)
47,587
(174)
239
(21,885)
12,068
(729)
71
(78,701)
(63,298)
2,429
(249)
(93,216)
104,241
(879)
325
Funds from operations (FFO)
$
12,022
$
11,737
$
49,981
$
39,632
Maintenance capital expenditure reserve
Amortization of mark-to-market
adjustments
(1,369)
(194)
(1,330)
(195)
(5,478)
(770)
Adjusted funds from operations (AFFO)
$
10,459
$
10,212
$
43,733
$
Distributions on Class B LP Units
Distributions on Units
2,591
4,127
6,718
2,504
3,960
6,464
10,162
16,189
26,351
(4,712)
(778)
34,142
9,195
10,799
19,994
AFFO Payout Ratio
64.23 %
63.30 %
60.25 %
58.56 %
Weighted average number of Units and
Class B LP Units issued and outstanding
FFO per unit
AFFO per unit
59,043,912
58,758,485
59,043,912
47,103,691
$
$
0.2036
0.1771
$
$
0.1997
0.1738
$
$
0.8465
0.7407
$
$
0.8414
0.7248
FFO was higher for the three months and year ended December 31, 2020 as compared to the previous year, reflecting the
positive NOI variance driven by higher rents achieved for the Same Property Portfolio, contributions from acquisitions and the
realization of gain-to-lease potential on suite turnover. AFFO was higher for the three months and year ended December 31,
2020 as compared to the previous year, primarily as a result of higher FFO. This increase was offset by an increase in the
maintenance capital expenditure reserve due to the growth in portfolio suite count based on an estimated spend of $900 per
suite.
A historical average of the actual maintenance capital expenditure since IPO equals $878 per suite which is largely in line with
the reserve of $900 per suite included in the AFFO calculation.
1 See Section I, "Non-IFRS Measures"
38Minto Apartment REIT|2020 Annual Report
Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
NOI and NOI Margin
Same Property Portfolio
Revenue from investment properties
Property operating expenses
NOI
NOI margin
Three months ended December 31,
Year ended December 31,
$
$
2020
2019
2020
22,242
$
23,191
$
90,218
$
8,571
8,662
34,197
13,671
$
14,529
$
56,021
$
61.5 %
62.6 %
62.1 %
2019
91,505
34,318
57,187
62.5 %
Same Property Portfolio - Excluding Furnished Suites
Three months ended December 31,
Year ended December 31,
Revenue from investment properties
$
20,281
$
20,604
$
82,578
$
2020
2019
2020
7,546
12,735
62.8 %
7,705
30,639
12,899
$
51,939
$
62.6 %
62.9 %
2019
80,928
30,608
50,320
62.2 %
Three months ended December 31,
Year ended December 31,
$
2020
30,930
11,984
18,946
61.3 %
2019
29,868
11,255
18,613
62.3 %
$
$
2020
124,929
46,309
78,620
$
$
62.9 %
2019
104,438
39,141
65,297
62.5 %
Property operating costs
NOI
NOI margin
Total Portfolio
Revenue from investment properties
Property operating costs
NOI
NOI margin
$
Debt-to-Gross Book Value Ratio
Refer to Section IV, "Liquidity and Capital Resources" for a reconciliation of Debt-to-Gross Book Value ratio.
Debt Service Coverage Ratio
The Debt Service Coverage ratio is calculated as follows:
Year ended
December 31, 2020
December 31, 2019
NOI
Interest expense and standby fees on credit facility
Distributions on Class C LP Units:
Principal repayments
Finance costs
Mortgages:
Principal repayments
Finance costs
Total debt service
Debt Service Coverage ratio
Debt-to-EBITDA Ratio
$
$
78,620 $
1,838
5,177
6,907
10,503
16,735
41,160 $
1.91 x
65,297
2,619
5,019
7,066
6,930
12,255
33,889
1.93 x
Refer to Section IV, "Liquidity and Capital Resources" for a reconciliation of Debt-to-EBITDA ratio.
39Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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, 2020
850,224 $
463,806
1,314,030 $
59,043,912
December 31, 2019
686,775
527,104
1,213,879
59,043,912
22.26 $
20.56
$
$
$
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:
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. 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 nature of its
assets and revenue. The REIT uses judgment in reviewing the real estate investment trust conditions and assessing their
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.
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 residential 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.
The REIT has used the best information available as at December 31, 2020, in determining the potential impact of the COVID-19
outbreak on the carrying amounts of assets and liabilities, earnings for the period and risks disclosed in the consolidated
financial statements for the years ended December 31, 2020 and 2019. The estimates that could be most significantly impacted
by COVID-19 include those underlying the valuation of investment properties and the estimated credit losses on accounts
receivable. Actual results may differ from those estimates.
40Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite 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:
COVID-19 - Contagious Disease Risk
COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. It or a similar contagious disease
outbreak at a local, regional or national level may have a material adverse effect on the business, financial condition and results
of operations of the REIT. In particular, a contagious disease outbreak like COVID-19 may result in a general or acute decline in
economic activity in the regions in which the REIT operates, increased unemployment, decreased immigration, decreased in-
person post-secondary school attendance, reduced tenant traffic and turnover, reduced rents and/or increased tenant
incentives, supply shortages and other supply chain disruptions, labour disruptions, staff shortages, increased government
regulation, mobility restrictions and other quarantine measures. These and similar consequences of a contagious disease
outbreak like COVID-19 may adversely impact tenants’ ability to pay rent and the REIT’s ability to capture gains-to-lease,
reposition suites and pursue construction and development activities. Increased government regulation may also restrict the
REIT’s ability to enforce material provisions under its leases, including in respect of the collection of rent or other payment
obligations. The quarantine or contamination of one or more of the REIT’s properties or suites may negatively impact the REIT’s
occupancy or reputation.
Management implemented a business continuity plan in early 2020, continues to monitor the situation and proactively adjust
its plans as the COVID-19 pandemic evolves.
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 or regulations affecting the availability and cost of CMHC mortgage insurance), 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. While
management has implemented comprehensive property maintenance programs and monitors property conditions constantly,
annual maintenance 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.
41Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite 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.
Access to Capital
The real estate industry is highly capital intensive. The REIT will require access to capital to fund its growth strategy and certain
capital expenditures from time to time. There can be no assurances that the REIT will have access to sufficient capital or access
to capital on terms favourable to the REIT for future property acquisitions, financing or refinancing of properties, funding
operating expenses or other purposes. Market conditions and unexpected volatility or illiquidity in financial markets may inhibit
the REIT’s access to financing in the Canadian capital markets. As a result, it is possible that financing which the REIT may
require in order to grow and expand its operations, upon the expiry of the term of financing, upon refinancing any particular
property owned by the REIT or otherwise, may not be available or, if it is available, may not be available on favourable terms to
the REIT. Failure by the REIT to access required capital could have a material adverse effect on the REIT’s business, cash flows,
financial condition and financial performance and ability to make distributions to Unitholders.
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 equity and/or debt
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.
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, construction, employment standards, environmental matters, taxes and other matters, including
laws and regulations imposing restrictions to limit the spread of the COVID-19 pandemic and laws and regulations limiting rent
increases and imposing a moratorium on the ability of landlords to evict tenants for the non-payment of rent a result of the
economic disruption caused by the COVID-19 pandemic. 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 or its ability to carry on its business in the
ordinary course.
42Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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. For 2021, Ontario has frozen the residential rents of existing tenants, but this
temporary freeze on rents will not impact the REIT's ability to negotiate market rents on new leases for suites as tenants
turnover and the REIT is still entitled to collect certain qualifying above-guideline increases in rents from existing tenants
notwithstanding the freeze.
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. In addition, the desirability of property locations may change over time. 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.
Risks Associated with the Administrative Support Agreement
The REIT relies upon Minto with respect to the provision of certain services as described under "Arrangements with Minto -
Administrative Support Agreement". If the REIT were to lose the services provided by Minto, or if Minto fails to perform its
obligations under the Administrative Support Agreement, the REIT may experience an adverse impact on its business
operations. The REIT may be unable to duplicate the quality and depth or the cost of the services available to it by handling such
services internally or by retaining another service provider.
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.
Utility and Property Tax Risk
Utility and property tax risk relates to the potential additional costs 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 higher property assessments of municipal properties and property tax rates. 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. The REIT mitigates part of this risk by submetering many of its suites to measure the consumption of electricity and
passing on the cost to tenants. Currently, approximately 90% of the suites in the Portfolio are submetered for electricity and
approximately 79% of tenants pay the cost of electricity consumed in their suites. The REIT will seek to pass on the cost of
electricity for those suites that are submetered but where the tenants do not currently pay for electricity, as the suites'
tenancies turn over.
43Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Rental Income Risks
The short-term nature of residential tenant leases exposes the REIT to the effects of a declining market rent, which could
materially adversely affect the REIT’s results from operations and ability to make distributions to Unitholders. Most of the REIT’s
residential tenant leases will be for a term of one year or less. Because the REIT’s residential tenant leases generally permit
residents to leave at the end of their lease term without any penalty, the REIT’s rental revenue may be materially adversely
affected by declines in market rents more quickly than if such leases were for longer terms. Further, the operating costs of a
suite or property may increase at a faster rate than the rental rate for such suite, which could negatively impact the financial
condition of the REIT.
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.
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 their economic
or business interests or goals may change in a manner to differ from or become 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.
44Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Potential Conflicts of Interest with Minto
Minto’s continuing businesses may lead to conflicts of interest between Minto and the REIT. The REIT may not be able to
resolve such conflicts, and, even if it does, the resolution may be less favourable to the REIT than if it were dealing with a party
that was not a holder of a significant interest in the REIT. In addition, the ongoing relationships between Minto and each of
Roger Greenberg, Philip Orsino and Michael Waters may lead to conflicts of interest between such persons and the REIT. In
order to mitigate part of the risk associated with conflicts of interest, all related party transactions with Minto are reviewed and
approved on behalf of the REIT by the REIT's independent trustees only.
Expanding Social Media Vehicles
The use of social media could cause the REIT to suffer brand damage or information leakage. Negative posts or comments about
the REIT or its properties on any social networking website could damage the REIT’s reputation. In addition, employees or
others might disclose non-public sensitive information relating to the REIT’s business through external media channels. The
continuing evolution of social media will present the REIT with new challenges and risks.
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 an
estimate 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. Appraisals are not guarantees of present or future value and there is no assurance that an appraised value actually
reflects an amount that would be realized upon a current or future sale of any of the properties or that any projections included
in the appraisal will be attainable. In addition, as prices in the real estate market fluctuate over time in response to numerous
factors, the value of a property as shown in an appraisal may be an unreliable indication of its current market value.
A publicly traded real estate investment trust will not necessarily trade at values determined solely by reference to the
underlying value of its real estate assets. Accordingly, the Units may trade at a premium or a discount to values implied by
appraisals.
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
be 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.
45Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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 2020 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.
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.
46Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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 fixed rate instruments, changes in market interest rates do not have
any significant direct effect on the REIT’s income.
The REIT's financial liabilities comprise both fixed rate and variable 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. 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 comprise variable 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, 2020, the REIT has a committed variable rate credit facility of $200,000 (December 31, 2019 -
$200,000) with an outstanding balance of $31,948 (December 31, 2019 - $91,009). A 1% change in prevailing interest rates
would change annualized interest charges incurred by $319 (December 31, 2019 - $910).
(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 the prevailing market price of the Units as at
December 31, 2020 would have a $4,638 (December 31, 2019 - $5,271) change in the 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.
47Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
The REIT is also exposed to credit risk in relation to the loans advanced to related parties, in the event that the borrowers
default 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’s liquidity is subject to macroeconomic, financial, competitive and
other factors that are beyond the REIT’s control including the recent COVID-19 disruption.
Liquidity risk is managed through cash flow forecasting. Management monitors forecasts of the REIT’s liquidity requirements to
ensure it has sufficient cash to meet operational needs through maintaining sufficient cash and/or availability on the undrawn
credit facility and ensuring that it meets its financial covenants related to debt agreements. Such forecasting takes into
consideration the current and projected macroeconomic conditions, the REIT's cash collection efforts, debt financing plans and
covenant compliance required under the terms of debt agreements. There is a risk that such liquidity forecasts may not be
achieved and that currently available debt financing may no longer be available to the REIT at terms and conditions that are
favorable to the REIT, or at all.
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.
Access to this capital is dependent on the successful renewal of the REIT’s credit facility when it comes due on July 3, 2021.
Although the REIT expects to renew the credit facility, there can be no assurance that it will otherwise have access to sufficient
capital or access to capital on favourable terms. Failure by the REIT to access required capital could have a material adverse
effect on its financial conditions or results of operations and its ability to make distributions to Unitholders. The committed
credit facility consists of the following:
As at
Committed
Available
Utilized
$
December 31, 2020
200,000 $
168,052
31,948
December 31, 2019
200,000
108,991
91,009
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
2021
34,209 $
31,948
66,157
5,341
23,448
8,929
10,039
18,410
2022
98,748 $
—
98,748
5,510
21,667
2023
57,964 $
—
57,964
50,234
18,180
2024
56,945 $
—
56,945
50,499
13,917
2025
31,097 $
—
31,097
63,541
11,646
2026 &
thereafter
320,450 $
—
320,450
42,399
35,306
—
—
—
—
413
151
26
—
46
—
—
—
10
—
1,318
20,338
Total
599,413
31,948
631,361
217,524
124,164
8,965
10,039
$
132,324 $
126,338 $
126,529 $
121,433 $
106,284 $
399,483 $ 1,012,391
The contractual cash flows do not include any unamortized mark-to-market adjustments or unamortized deferred financing
costs.
48Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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. 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 Gross
Book Value of the REIT's assets.
For the year ended December 31, 2020, the REIT incurred $1,695 (December 31, 2019 - $848) for services rendered under the
ASA.
The REIT monitors the administrative support fee, ensuring adherence with the requirements established under the ASA. For
the year ended December 31, 2020, annualized general and administrative expenses, excluding public company costs, represent
21 bps of Gross Book Value (December 31, 2019 - 18 bps).
Loans Receivable from Related Parties
The REIT committed to advance up to $30,000 to an affiliate of MPI to support its redevelopment of Fifth and Bank from a
commercial property to a multi-residential property. 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. At the option of the borrower,
the interest is payable monthly or deemed an advance subject to the limit of $30,000 on advances. In connection with this
financing, the REIT will have the exclusive option to purchase the property upon stabilization at 95% of its then fair market
value as determined by independent and qualified third-party appraisers. For the year ended December 31, 2020, the REIT
advanced $10,273 (December 31, 2019 - $19,727), earned interest income of $1,544 (December 31, 2019 - $195) and received
interest of $1,739 (December 31, 2019 -$nil). As at December 31, 2020, amount receivable under the loan was $30,000
(December 31, 2019 - $19,922).
On November 30, 2020, the REIT committed to advance up to $11,915 to a limited partnership jointly owned by MPI and a
subsidiary of DPL to develop Lonsdale Square in North Vancouver, British Columbia and an additional $2,085 for interest costs.
The loan bears interest at 7% and matures on May 30, 2024. The loan is secured by a second priority charge in favor of the
lender and guaranteed by MPI and DPL. At the option of the borrower, the interest is payable monthly or deemed an advance.
In connection with this financing, the REIT will have the exclusive option to purchase the property upon stabilization at 95% of
its then fair market value as determined by independent and qualified third-party appraisers. For the year ended December 31,
2020, the REIT advanced $11,915 and earned interest income of $73. As at December 31, 2020, the amount receivable under
the loan was $11,988.
Due to Related Parties
Amounts due to related parties at December 31, 2020 include $863 and $575 (December 31, 2019 - $732 and $588) 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 $34 (December 31, 2019 - $33) for distributions on Units, $nil (December 31, 2019 -
$94) in connection with the ASA, $nil (December 31, 2019 - $103) for distributions on Class B LP Units and $211 (December 31,
2019 - $288) for working capital.
Amounts due to related parties also include $8,356 (December 31, 2019 - $nil) payable to MPI for the block of 32 suites of the
Skyline Maisonettes property in Ottawa which was reconstructed following a fire and transferred to the REIT in 2020. The
payable will settle once the investment property is stabilized.
Revenue and Expense
•
•
Included in rental revenue for the year ended December 31, 2020 is $723 (December 31, 2019 - $842) 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, 2020 is $713 (December 31, 2019 - $954) paid
to MPI and its affiliates for repairs and maintenance and other expenses at certain REIT properties.
49Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
•
•
•
•
•
For the year ended December 31, 2020, compensation to key management personnel includes $642 (December 31, 2019 -
$768) paid to executives, Unit-based compensation expense of $1,160 (December 31, 2019 - $291) for executives and Unit-
based compensation expense for the grant of Deferred Units to Trustees in lieu of annual retainer and meeting fees of
$513 (December 31, 2019 - $474). 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, 2020 are distributions on Class B LP Units of $10,162 (December
31, 2019 - $9,195), paid or payable to MPI and a limited partnership wholly-owned by MPI.
Included in finance costs for the year ended December 31, 2020 are distributions on Class C LP Units of $6,907 (December
31, 2019 - $7,066), paid or payable to a limited partnership wholly-owned by MPI.
Included in finance costs for the year ended December 31, 2020 is interest income of $1,617 (December 31, 2019 - $195)
earned from the loans advanced to related parties.
For the year ended December 31, 2020, the REIT reimbursed $nil (December 31, 2019 - $312) to MPI for costs paid on
behalf of the REIT.
Distributions
•
•
For the year ended December 31, 2020, distributions of $5,177 (December 31, 2019 - $5,019) 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, 2020, distributions on Units to MPI of $401 (December 31, 2019 - $131) were declared
and recorded as a reduction to Unitholders' equity.
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 17 of the consolidated financial
statements for the years ended December 31, 2020 and 2019.
Adoption of Accounting Standards
The REIT adopted the amendments to IFRS 3, Business Combinations, that clarify whether a transaction results in an asset
acquisition or a business combination. The REIT adopted the amendments in its consolidated financial statements beginning on
January 1, 2020. These amendments did not have an impact on the REIT's consolidated financial statements.
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:
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1, Presentation of Financial
Statements)
On January 23, 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, providing a more general
approach to the classification of liabilities based on the contractual agreements in place at the reporting date. The amendments
apply to annual reporting periods beginning on or after January 1, 2023. Earlier adoption is permitted.
The amendments to IAS 1 affect only the presentation of liabilities in the balance sheet and seek to clarify that the classification
of liabilities as current or non-current should be based on the rights that are in existence at the end of the reporting period.
Further, the amendments make clear that classification is unaffected by expectations about whether an entity will exercise its
right to defer settlement of a liability and that the settlement of a liability refers to the transfer to the counterparty of cash,
equity instruments, other assets or services.
The REIT intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2023, when the
amendments become 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.
50Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
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.
The Chief Executive Officer and the Chief Financial Officer have evaluated, or caused an evaluation under their direct
supervision of, the design of disclosure controls and procedures and internal controls over financial reporting (as defined in
National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) as at December 31, 2020.
After evaluating the effectiveness of the REIT’s DC&P as of December 31, 2020, it is Management's belief 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, after evaluating the effectiveness of the REIT’s ICFR as of December 31, 2020,
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, 2020 to December
31, 2020 to the design of the REIT’s ICFR that has materially affected, or is reasonably likely to materially affect, the REIT’s ICFR.
Management has also considered the impact of COVID-19 on its ICFR and DC&P and noted that while a significant portion of the
workforce has shifted to working remotely, controls continue to operate as designed. The REIT has not significantly reduced its
workforce nor reduced the number of working hours as a result of the pandemic and control owners continue to perform their
ordinary control activities. Similarly, the REIT has not experienced significant challenges or delays in completing its accounting
and financial reporting processes while working remotely. In response to the increase in tele-working, Management has put
forth incremental effort to ensure material information flows throughout the organization effectively and has significantly
increased the frequency of meetings aimed at disseminating and soliciting key information.
51Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Section VI - Supplemental Information
Property Portfolio
Property
Toronto
1 High Park Village
Leslie York Mills
2
3
Richgrove
4 Martin Grove
5 Minto Yorkville1
Roehampton1
6
Ottawa
Parkwood Hills Garden Homes & Townhomes
Aventura
7 Minto one80five1
8
9
10 Huron
11 Seneca
12 Castleview
13 Skyline Garden Homes, Maisonettes & Walkups2
14 The Carlisle
15 Castle Hill
16 Grenadier
17 Tanglewood
18 Eleanor
19 Frontenac
20 Stratford
Montreal
21 Rockhill
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
Total Suites
REIT Ownership
Interest
Effective Ownership
Interest (Suites)
750
409
258
237
181
148
1,983
417
393
354
251
251
241
227
193
176
158
122
117
104
59
3,063
1,004
318
210
1,532
98
92
64
254
199
144
70
413
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
193
176
158
122
117
104
59
3,063
502
318
210
1,030
98
92
64
254
199
144
70
413
Portfolio Total3
1 Suite counts for Minto Yorkville, Roehampton, Minto one80five and The Laurier include furnished suites, representing approximately 26% of
7,245
6,089
the total suites at these properties.
2 Excludes 32 Maisonettes rebuilt after being destroyed by fire in March 2017 and are under a lease up period.
3 Same Property Portfolio comprises the properties listed in the table above, with the exception of properties 1, 2, 21, 22, 23.
52Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust | Management's Discussion and Analysis - 2020
(in thousands of Canadian dollars, except Unit and per Unit amounts, per suite amounts and other non-financial data)
Average Rent Per Square Foot
Geographic Node
Toronto
Ottawa
Alberta
Montreal
Average
Average
monthly rent
1,858
1,511
1,235
1,923
1,623
$
$
Average sq. ft.
per suite
800 $
836
725
1,007
846 $
Average rent
per sq. ft
2.32
1.81
1.70
1.91
1.92
53Minto Apartment REIT|2020 Annual Report 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, 2020 and December 31, 2019;
the consolidated statements of net income and comprehensive income for the years then ended;
the consolidated statements of changes in unitholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; 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, 2020 and December 31, 2019, and its consolidated financial performance and its consolidated
cash flows for the years then ended 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.
Evaluation of the fair value of residential investment properties
Description of the matter
We draw attention to Note 2(f), Note 2(r) and Note 3 of the financial statements. The Entity uses the fair value method to
account for real estate classified as investment property. The Entity has recorded residential investment properties for an
amount of $2,098,052 thousand, representing the most significant portion of investment properties. Significant assumptions in
determining the fair value of residential properties include:
•
•
estimated 12 month stabilized forecasted net operating income for each property; and
capitalization rates.
Why the matter is a key audit matter
We identified the evaluation of the fair value of residential investment properties as a key audit matter. This matter
represented an area of significant risk of material misstatement given the magnitude of residential investment properties and
the high degree of estimation uncertainty in determining the fair value of residential investment properties. Additionally,
significant auditor judgment and involvement of those with specialized skills and knowledge were required in evaluating the
results of our audit procedures due to the sensitivity of the fair value of residential investment properties to minor changes in
significant assumptions.
54Minto Apartment REIT|2020 Annual Report How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
For a selection of residential investment properties, we assessed the Entity’s ability to forecast by comparing the
Entity’s estimated 12 month stabilized forecasted net operating income used in the prior year’s estimate of the fair value of
residential investment properties to actual results.
For a selection of residential investment properties, we compared the estimated 12 month stabilized forecasted net operating
income for each selected property to the actual historical net operating income by:
•
•
Taking into account the changes in conditions and events affecting the residential investment properties; and
Considering the adjustments, or lack of adjustments, made by the Entity in arriving at the estimated 12 month
stabilized forecasted net operating income.
For a selection of residential investment properties, we involved valuations professionals with specialized skills and knowledge,
who assisted in evaluating the capitalization rates used in determining the fair value of those residential investment properties.
These rates were compared to published reports of real estate industry commentators taking into consideration the
characteristics of the specific residential property.
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 “2020 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 obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions and the 2020 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.
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.
55Minto Apartment REIT|2020 Annual Report 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; and
Determine, from the matters communicated with those charged with governance, those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Thomas Rothfischer.
Toronto, Canada
March 11, 2021
56Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Assets
Investment properties
Loans receivable from related parties
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
Note
December 31, 2020
December 31, 2019
3
11
6
7
8
9
10
10
11
12
17
$
$
$
$
$
2,138,101 $
41,988
18,538
2,050
2,607
2,203,284 $
463,806 $
219,885
598,079
31,948
8,965
10,039
20,338
1,353,060 $
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
850,224
686,775
2,203,284 $
2,050,300
See accompanying notes to the consolidated financial statements.
57Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Consolidated Statements of Net Income and Comprehensive Income
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars)
Revenue from investment properties
15
$
124,929 $
104,438
Note
December 31, 2020
December 31, 2019
Property operating expenses
Property operating costs
Property taxes
Utilities
Property operating income
Other expenses (income)
General and administrative
Finance costs - operations
Fair value loss (gain) on:
Investment properties
Class B LP Units
Interest rate swap
Unit-based compensation
Fees and other income
23,221
13,346
9,742
46,309
78,620
6,634
33,767
(78,701)
(63,298)
2,429
(249)
(1,600)
(101,018)
16
3
8, 16
12, 16
21
Net income and comprehensive income
$
179,638 $
See accompanying notes to the consolidated financial statements.
19,755
11,016
8,370
39,141
65,297
5,607
30,132
(93,216)
104,241
(879)
325
(879)
45,331
19,966
58Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Consolidated Statements of Changes in Unitholders' Equity
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars)
Balance, December 31, 2018
Units issued, net of issue costs
Net income and comprehensive income
Distributions
Balance, December 31, 2019
Net income and comprehensive income
Distributions
13
13
Note
Units
Distributions
Retained
earnings
$
212,078 $
(3,216) $
49,390 $
419,356
—
—
—
—
(10,799)
—
19,966
—
Total
258,252
419,356
19,966
(10,799)
$
631,434 $
(14,015) $
69,356 $
686,775
—
—
—
179,638
(16,189)
—
179,638
(16,189)
Balance, December 31, 2020
$
631,434 $
(30,204) $
248,994 $
850,224
See accompanying notes to the consolidated financial statements.
59Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Consolidated Statements of Cash Flows
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars)
Note
December 31, 2020
December 31, 2019
Cash provided by (used in):
Operating activities
Net income
Adjustments for:
Finance costs - operations
Fair value loss (gain) on:
Investment properties
Class B LP Units
Interest rate swap
Unit-based compensation
Change in non-cash working capital
Cash provided by operating activities
Financing activities
Proceeds from issuance of Units, net of issue costs
Proceeds from mortgage financing
CMHC premiums paid
Financing costs
Principal repayments on mortgages
Net (repayments) proceeds on credit facility
Distributions on Class B LP Units
Distributions on Class C LP Units, used to repay principal
Distribution on Units
Interest paid
Cash (used in) provided by financing activities
Investing activities
Capital additions to investment properties
Loans advanced to related parties
Interest received
Acquisition of investment properties
Cash used in investing activities
Change in cash during the year
Cash, beginning of the year
Cash, end of the year
16
3
8, 16
12, 16
21
20
10
10
10
10
9
11
4
See accompanying notes to the consolidated financial statements.
$
179,638 $
33,767
(78,701)
(63,298)
2,429
(249)
(3,729)
69,857
—
225,576
(3,360)
(1,757)
(122,597)
(59,061)
(10,133)
(5,177)
(16,144)
(25,286)
(17,939)
(30,826)
(22,188)
1,775
—
(51,239)
679
1,928
$
2,607 $
19,966
30,132
(93,216)
104,241
(879)
325
(6,739)
53,830
399,436
158,360
(2,971)
(322)
(6,930)
55,084
(9,073)
(5,019)
(10,011)
(20,869)
557,685
(19,179)
(19,727)
—
(571,573)
(610,479)
1,036
892
1,928
60Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(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 is
amended from time to time. The REIT owns and operates 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.
At December 31, 2020, the REIT's portfolio consists of interests in 29 multi-residential rental properties, including three mixed-
use residential apartment and commercial buildings, all of which are held by Minto Apartment Limited Partnership (the
"Partnership"), which is consolidated by the REIT.
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.
The COVID-19 outbreak has resulted in the federal and provincial governments enacting emergency measures to combat
the spread of the virus. These measures include the implementation of travel bans, self-imposed quarantine periods and
social distancing, and has caused material disruption to businesses globally, resulting in an economic slowdown. As of
December 31, 2020, a couple of vaccine candidates were authorized for use by Health Canada while others were in the
approval process. With the limited supply of vaccines available, Health Canada has adopted a phased approach to vaccine
delivery with seniors and health care workers being the priority. Until extensive immunization is achieved, public health
measures will continue to be essential to minimize the outbreak. The situation is dynamic and the ultimate duration and
magnitude of the impact on the economy and the financial effect on the REIT are unknown. The REIT continues to monitor
and assess the impact that COVID-19 will have on its business activities and financial results that could potentially be
impacted, including: cash collections from tenants, rental income, occupancy, turnover, future demand and market rents,
all of which impact the valuation of investment properties.
The REIT has used all information available as at December 31, 2020 that it considers relevant in determining the potential
impact of the COVID-19 pandemic on the carrying amounts of assets and liabilities, earnings for the year and risks disclosed
in the consolidated financial statements for the years ended December 31, 2020 and 2019. The estimates and judgements
that could be most significantly impacted by COVID-19 include those underlying the valuation of investment properties and
the estimated credit losses on accounts receivable. Actual results could differ from those estimates. Investment properties
(Note 3) and risk management (Note 18) include disclosures of the potential impacts of COVID-19 on fair value of
investment properties and liquidity risk.
(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 11, 2021.
61Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(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 a transaction results in an asset acquisition or a business combination. The amendments to IFRS 3, Business
Combinations ("IFRS 3"), adopted on January 1, 2020, 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 the REIT chooses not to apply the concentration test, or
the test is failed, then the assessment focuses on the existence of a substantive process. If no substantive processes are
acquired, the acquisition is treated as an asset acquisition rather than a business combination.
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 the REIT's interest in the joint operations.
62Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(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, including capitalization rates that reflect the characteristics, location and market of each
property. 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.
Fair value for residential properties is determined using the direct capitalization approach by applying an appropriate
capitalization rate which reflects the characteristics, location and market of each property to the estimated 12 month
stabilized forecasted net operating income for each property, and deducting estimated aggregate future capital
expenditures. Estimated 12 month stabilized forecasted net operating income is based on the respective property's
forecasted results, adjusted to reflect market occupancy rates and expenditure levels. Fair value is determined based on
internal valuation models.
Fair value for commercial properties is determined using the discounted future cash flow approach over a term of ten
years plus a terminal value. Discount rates and terminal 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.
Fair value for land held for development is determined by reference to comparable market prices for similar assets.
As part of the internal valuation process, the REIT considers external valuations performed by independent national real
estate valuation firms for a cross-section of properties that represent different geographical locations across the REIT’s
portfolio. On a quarterly basis, Management reviews and updates, as deemed necessary, the valuation models to reflect
current market data.
(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 which are 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.
63Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The REIT has made the following classifications for its financial instruments:
Amount
Loans receivable from related parties
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.
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, transfer taxes and duties, and a portion of Canada Mortgage and Housing Corporation ("CMHC")
insurance premiums related to current mortgages.
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 does 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.
64Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
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 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.
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.
65Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
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.
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 loans receivable from related parties 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 or liabilities between fair value levels during the period presented herein.
(i) CMHC premiums
CMHC mortgage insurance premiums provide coverage over the loan amortization period, typically 25 to 40 years. The
portion related to the term of currently outstanding mortgages are accounted for as a financing charge and amortized over
the life of respective mortgages using the effective interest method. The remaining portion of the CMHC mortgage
insurance premiums are classified as prepaid expenses.
(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.
66Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(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.
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 and financing charges, distributions on Class B LP Units and Class C LP Units, fair value loss (gain) on Class B LP
Units and fair value loss (gain) on 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.
67Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(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 the Plan 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 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 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) Significant judgments in applying accounting policies
The following are the significant 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. 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 nature of its assets and revenue. The REIT uses judgment in reviewing the real estate investment trust conditions and
assessing their 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.
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) Significant 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 have the
most significant effect on the reported amounts in the consolidated financial statements include:
Residential Investment properties valuation
In applying the REIT’s policy with respect to investment properties, significant accounting estimates and assumptions are
required to determine the valuation of the residential properties under the fair value model. Significant accounting
estimates and assumptions used in the REIT's internal valuation model include the estimated 12 month stabilized
forecasted net operating income for each property and the capitalization rates that reflect the characteristics, location and
market for each property.
68Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
(s) Adoption of new standards, amendments and interpretations
Definition of a business (Amendments to IFRS 3, Business Combinations)
The amendments to IFRS 3 clarify whether a transaction results in an asset acquisition or a business combination. 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 adopted the amendments to IFRS 3 on January 1,
2020. The adoption of these amendments did not have any impact on the REIT's consolidated financial statements.
(t) Future changes in accounting standards
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1, Presentation of Financial Statements)
On January 23, 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, providing a more general
approach to the classification of liabilities based on the contractual agreements in place at the reporting date. The
amendments apply to annual reporting periods beginning on or after January 1, 2023. Earlier adoption is permitted.
The amendments to IAS 1 affect only the presentation of liabilities in the balance sheet and seek to clarify that the
classification of liabilities as current or non-current should be based on the rights that are in existence at the end of the
reporting period. Further, the amendments make clear that classification is unaffected by expectations about whether an
entity will exercise its right to defer settlement of a liability and that the settlement of a liability refers to the transfer to
the counterparty of cash, equity instruments, other assets or services.
The REIT intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2023, when
the amendments become 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.
3. Investment properties
The following is a breakdown of the REIT's investment properties by type:
Residential properties
Commercial properties
Land held for development
The following table presents the change in investment properties:
Opening balance
Additions
Acquisitions of investment properties (Note 4)
Capital expenditures
Fair value gain
Other
Closing balance
December 31, 2020
2,098,052 $
22,490
17,559
2,138,101 $
December 31, 2019
1,979,657
22,840
13,831
2,016,328
December 31, 2020
2,016,328 $
December 31, 2019
1,197,811
—
41,467
78,701
1,605
702,393
22,908
93,216
—
2,138,101 $
2,016,328
$
$
$
$
Capital expenditures include costs relating to an investment property which was reconstructed following a fire.
69Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
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,
2020, 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, 2020, the
REIT obtained external property appraisals representing approximately 54% (December 31, 2019 - 42%) of the REIT's
investment properties.
The REIT continues to review market capitalization, discount and terminal capitalization rates, as well as its future cash flow
projections and their impact on the valuation of its properties in light of the COVID-19 pandemic (Note 2(a)). The carrying value
of the REIT's investment properties reflects Management's best estimate of fair value in terms of the assessed highest and best
use as at December 31, 2020. It is not possible to forecast with certainty the duration or full scope of the economic impact
COVID-19 will have on the REIT's business and operations, both in the short and long term. Any long-term effects on market
rents, occupancy, turnover and future demand would ultimately impact the underlying valuation of investment properties and
such impact may be material.
The following table summarizes the significant unobservable inputs in determining fair value of residential properties:
Significant unobservable inputs
Capitalization rates
Inter-relationship between significant unobservable inputs and fair value measurement
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.
Estimated 12 month stabilized
forecasted net operating income
(NOI)
There is a direct relationship between the estimated 12 month stabilized forecasted NOI
and the fair value; in other words, the higher the estimated 12 month stabilized forecasted
NOI, the higher the estimated fair value.
The following table summarizes the significant unobservable inputs of the REIT's residential properties:
Capitalization rate
December 31, 2020
December 31, 2019
Min
3.25%
Max
4.25%
Weighted
average
3.81%
Min
3.25%
Max
4.75%
Weighted
average
3.92%
The following table summarizes the sensitivity of the fair value of residential properties to changes in capitalization rates and
estimated 12 month stabilized forecasted NOI as at December 31, 2020:
December 31, 2020
Capitalization rate
-50 basis points
-25 basis points
Base rate
+25 basis points
+50 basis points
-3 %
-1 %
NOI
+1 %
+3 %
2,350,915
2,180,741
2,032,885
1,903,225
1,788,598
2,400,916
2,227,234
2,076,329
1,943,997
1,827,006
2,425,917
2,250,481
2,098,052
1,964,382
1,846,210
2,450,918
2,273,727
2,119,774
1,984,768
1,865,414
2,500,920
2,320,221
2,163,218
2,025,539
1,903,821
70Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(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 and
estimated 12 month stabilized forecasted NOI as at December 31, 2019:
December 31, 2019
Capitalization rate
-50 basis points
-25 basis points
Base rate
+25 basis points
+50 basis points
-3 %
-1 %
NOI
+1 %
+3 %
$
2,208,876 $
2,053,600
1,918,123
1,798,885
1,693,131
2,255,893 $
2,097,415
1,959,145
1,837,448
1,729,514
2,279,401 $
2,119,323
1,979,657
1,856,730
1,747,705
2,302,909 $
2,141,231
2,000,167
1,876,012
1,765,897
2,349,926
2,185,046
2,041,189
1,914,575
1,802,280
4. Acquisitions of investment properties
During the year ended December 31, 2020, there was no change in the number of investment properties.
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 the acquisition date.
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
$
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%
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
—
45,000
3.16%
December 1, 2030
100%
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%.
$ 702,393 $
62,872 $
156,816
71Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Cash used in acquisitions of investment properties was as follows:
Total acquisition cost
Mortgages assumed
Interest rate swap acquired
Issuance of Class B LP Units (Note 8)
Deposits applied on acquisition
Transaction costs payable
Working capital assumed
Cash consideration paid on close
5. Joint operations
$
December 31, 2019
(702,393)
62,872
(232)
56,964
3,000
6,052
2,164
$
(571,573)
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 are as follows:
Property
Leslie York Mills
Rockhill
High Park Village
Date of acquisition
May 1, 2019
May 7, 2019
August 1, 2019
Location
Toronto, ON
Montreal, QC
Toronto, ON
Ownership interest
50%
50%
40%
6. Prepaid expenses and other assets
Prepaid expenses
Prepaid CMHC premiums
Restricted cash
Funds held in escrow (Note 10)
Deposits and other prepayments
Interest rate swap (Note 12)
Current
Non-current
December 31, 2020
1,467 $
6,940
1,180
8,558
393
—
18,538 $
11,197
7,341
18,538 $
December 31, 2019
1,314
4,506
1,012
—
2,352
1,111
10,295
4,641
5,654
10,295
$
$
$
72Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
7. Resident and other receivables
Current
Resident receivables
Other receivables
Less: Allowance for credit losses
December 31, 2020
December 31, 2019
$
$
1,240 $
1,422
(612)
2,050 $
384
1,526
(83)
1,827
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.
8. Class B LP Units
The following table reconciles the changes in cash flows and outstanding units for the Class B LP Units:
Balance, December 31, 2018
Non-cash movement
Issued, August 1, 2019 (Note 4)
Exchanged for Units, September 17, 2019 (Note 13)
Fair value loss
Balance, December 31, 2019
Non-cash movement
Fair value gain
Balance, December 31, 2020
Units
20,859,410 $
2,806,122
(896,459)
—
1,909,663
22,769,073 $
—
22,769,073 $
$
385,899
56,964
(20,000)
104,241
141,205
527,104
(63,298)
463,806
For the year ended December 31, 2020, distributions of $10,162 (December 31, 2019 - $9,195) 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.
9. Class C LP Units
Class C LP Units
Unamortized mark-to-market adjustments
Current
Non-current
December 31, 2020
217,524 $
2,361
219,885 $
5,816
214,069
219,885 $
December 31, 2019
222,702
2,835
225,537
5,653
219,884
225,537
$
$
$
73Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following table reconciles the changes in cash flows for the Class C LP Units:
Balance, December 31, 2018
Cash flows
Distributions used to repay principal
Non-cash movement
Amortization of mark-to-market adjustments
Balance, December 31, 2019
Cash flows
Distributions used to repay principal
Non-cash movement
Amortization of mark-to-market adjustments
Units
22,978,700 $
—
—
—
22,978,700 $
—
—
—
Balance, December 31, 2020
22,978,700 $
$
231,037
(5,019)
(481)
(5,500)
225,537
(5,177)
(475)
(5,652)
219,885
For the year ended December 31, 2020, the REIT made distributions of $6,907 (December 31, 2019 - $7,066) 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, 2019 - 3.16%) and mature at various dates between 2023 and 2030
(December 31, 2019 - 2023 and 2030).
Distributions on Class C LP Units as at December 31, 2020, excluding unamortized mark-to-market adjustments, are due as
follows:
2021
2022
2023
2024
2025
2026 and thereafter
$
5,341
5,510
50,234
50,499
63,541
42,399
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, 2020, the current market rates plus risk-adjusted spreads ranged from 1.06% to 2.49% (December
31, 2019 - 2.60% to 3.40%) and the fair value of the Class C LP Units was $232,188 (December 31, 2019 - $227,507) and is
considered level 2 within the fair value hierarchy.
74Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
10. Secured Debt
Mortgages - fixed rate¹
Unamortized mark-to-market adjustment
Unamortized deferred financing costs
Total mortgages
Credit facility2
Current
Non-current
December 31, 2020
599,413
1,446
(2,780)
598,079
31,948
December 31, 2019
487,876
1,741
(310)
489,307
91,009
630,027 $
66,105
563,922
630,027 $
580,316
21,490
558,826
580,316
$
$
$
¹ Fixed rate mortgages are secured by investment properties, bear interest at a weighted average contractual interest rate of
2.85% (December 31, 2019 - 3.14%) and mature at various dates from 2021 through 2030 (December 31, 2019 - 2020 through
2030). The fixed rate mortgages include a $38,234 (December 31, 2019 - $39,174) variable interest mortgage fixed through an
interest rate swap.
2 The REIT has a committed credit facility of $200,000 (December 31, 2019 - $200,000) 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, 2020, $31,948 (December 31, 2019 - $91,009) was utilized and the remaining amount of $168,052
(December 31, 2019 - $108,991) of this facility was available in accordance with its terms and conditions. The credit facility
bears interest at one month bankers' acceptance plus 175 bps or prime plus 75 bps and as at December 31, 2020, the weighted
average variable interest rate was 2.25% (December 31, 2019 - 3.72%).
The secured debt balances at December 31, 2020, excluding unamortized mark-to-market adjustments and unamortized
deferred financing costs, are due as follows:
2021
2022
2023
2024
2025
2026 and thereafter
$
66,157
98,748
57,964
56,945
31,097
320,450
75Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
The following tables reconcile the changes in cash flows for secured debt:
Balance, December 31, 2018
$
273,574 $
2,038 $
(11) $
35,925 $
311,526
Unamortized
mark-to-market
adjustments
Unamortized
deferred
financing costs
Mortgages
Credit facility
Total
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
415,122
(208,930)
206,192
—
—
—
—
62,872
23
(297)
62,598
Balance, December 31, 2019
$
487,876 $
1,741 $
(310) $
91,009 $
580,316
Cash flows
Issued
Repayments
Non-cash movement
Funds held in escrow1
Financing costs
Deferred financing amortization
Amortization of mark-to-market
adjustment
225,576
(122,597)
102,979
8,558
—
—
—
8,558
—
—
—
—
—
—
(295)
(295)
(1,757)
—
(1,757)
56,939
(116,000)
(59,061)
280,758
(238,597)
42,161
—
(968)
255
—
(713)
—
—
—
—
—
8,558
(968)
255
(295)
7,550
Balance, December 31, 2020
$
599,413 $
1,446 $
(2,780) $
31,948 $
630,027
1 Proceeds of $11,928 from a conventional mortgage obtained during the year were held in escrow subject to certain
conditions. $3,370 of the funds held in escrow were released in December 2020.
As at December 31, 2020 and December 31, 2019, the REIT was in compliance with all financial covenants relating to its debt
obligations.
Fair value of fixed rate mortgages is calculated based on current market rates plus risk-adjusted spreads on discounted cash
flows. As at December 31, 2020, the current market rates plus risk-adjusted spreads ranged from 0.95% to 2.81% (December
31, 2019 - 2.60% to 3.90%) and the fair value of fixed rate mortgages was $629,898 (December 31, 2019 - $494,589) 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.
76Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
11. 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 Minto Properties Inc. ("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, 2020, the REIT incurred $1,695 (December 31, 2019 - $848) for services rendered by MPI and
its affiliates under the ASA.
(b) Loans receivable from related parties
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. At the option of the
borrower, the interest is payable monthly or deemed an advance. In connection with this financing, the REIT will have the
exclusive option to purchase the property upon stabilization at 95% of its then fair market value as determined by independent
and qualified third-party appraisers. For the year ended December 31, 2020, the REIT advanced $10,273 (December 31, 2019 -
$19,727), earned interest income of $1,544 (December 31, 2019 - $195) and received interest of $1,739 (December 31, 2019 -
$nil). As at December 31, 2020, amount receivable under the loan was $30,000 (December 31, 2019 - $19,922).
On November 30, 2020, the REIT committed to advance $11,915 to a limited partnership jointly owned by MPI and a subsidiary
of Darwin Properties Limited ("DPL") to develop Phase I of Lonsdale Square ("Lonsdale Square") in North Vancouver, British
Columbia and an additional $2,085 to fund interest costs. The loan bears interest at 7% and matures on May 30, 2024. The loan
is secured by a second priority charge in favor of the lender and guaranteed by MPI and DPL. At the option of the borrower, the
interest is payable monthly or deemed an advance. In connection with this financing, the REIT will have the exclusive option to
purchase the property upon stabilization at 95% of its then fair market value as determined by independent and qualified third-
party appraisers. For the year ended December 31, 2020, the REIT advanced $11,915 and earned interest income of $73. As at
December 31, 2020, the amount receivable under the loan was $11,988.
The fair value of the loans receivable from related parties is determined by reference to current market rates that could be
obtained for similar instruments with similar terms and maturities. As at December 31, 2020 and December 31, 2019, the
carrying value of the loans approximates their fair value and is considered level 2 within the fair value hierarchy.
(c) Due to related parties
Amounts due to related parties at December 31, 2020 include $863 and $575 (December 31, 2019 - $732 and $588) 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 $34 (December 31, 2019 - $33) for distributions on Units, $nil (December 31, 2019 -
$94) in connection with the ASA, $nil (December 31, 2019 - $103) for distributions on Class B LP Units and $211 (December 31,
2019 - $288) for working capital.
77Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
Prior to its initial public offering in 2018, the REIT acquired the Skyline Maisonettes property in Ottawa, Ontario. This property
was damaged by a fire in March 2017, which destroyed 32 suites. The re-construction of this block was substantially completed
and transferred to the REIT in 2020. Amounts due to related parties include $8,356 (December 31, 2019 - $nil) payable to MPI
for the reconstructed Skyline Maisonettes. The payable will settle once the investment property is stabilized.
(d) Revenue and expenses
•
•
•
•
•
•
•
Included in rental revenue for the year ended December 31, 2020 is $723 (December 31, 2019 - $842) 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, 2020 is $713 (December 31, 2019 - $954) paid
to MPI and its affiliates for repairs and maintenance and other expenses at certain REIT properties.
For the year ended December 31, 2020, compensation to key management personnel includes $642 (December 31, 2019 -
$768) paid to executives, Unit-based compensation expense of $1,160 (December 31, 2019 - $291) for executives and Unit-
based compensation expense for the grant of Deferred Units to Trustees in lieu of annual retainer and meeting fees of
$513 (December 31, 2019 - $474), 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, 2020 are distributions on Class B LP Units of $10,162 (December
31, 2019 - $9,195), paid or payable to MPI and a limited partnership wholly-owned by MPI.
Included in finance costs for the year ended December 31, 2020 are distributions on Class C LP Units of $6,907 (December
31, 2019 - $7,066), paid or payable to a limited partnership wholly-owned by MPI.
Included in finance costs for the year ended December 31, 2020 is interest income of $1,617 (December 31, 2019 - $195)
earned from the loans advanced to related parties.
For the year ended December 31, 2020, the REIT reimbursed $nil (December 31, 2019 - $312) to MPI for costs paid on
behalf of the REIT.
(e) Distributions
•
•
For the year ended December 31, 2020, distributions of $5,177 (December 31, 2019 - $5,019) 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, 2020, distributions on Units to MPI of $401 (December 31, 2019 - $131) were declared
and recorded as a reduction to Unitholders' equity.
(f) 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.
78Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
12. Accounts payable and accrued liabilities
Accounts payable
Accrued liabilities
Distributions payable
Unit-based compensation (Note 21)
Interest rate swap
Current
Non-current
December 31, 2020
8,348 $
6,295
1,342
3,035
1,318
20,338 $
18,410
1,928
20,338 $
December 31, 2019
5,571
11,539
1,297
1,611
—
20,018
19,744
274
20,018
$
$
$
The following table is a summary of the REIT's interest rate swap and the respective fair value of the liability (asset):
Instrument
Maturity
Fixed
rate
Original notional
amount
Notional
amount
December 31, 2020 December 31, 2019
Interest rate swap1
April 2026
3.38%
$42,360
$38,234
$
1,318 $
(1,111)
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 periods presented:
Opening balance
Non-cash movement
Acquired2
Fair value loss (gain)
Closing balance
December 31, 2020
(1,111) $
December 31, 2019
—
—
2,429
1,318 $
(232)
(879)
(1,111)
$
$
1 The REIT has a 40% ownership interest in this contract through the ownership of a joint operation.
2 The REIT acquired the interest rate swap on August 1, 2019 in connection with its acquisition of High Park Village.
79Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
13. Units
The following table presents the change in and outstanding amount of Units:
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 (Note 8)
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
36,274,839 $
$
212,078
165,172
20,000
215,401
18,783
631,434
Balance, December 31, 2020
36,274,839 $
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 per
Unit 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, 2020, distributions to Unitholders of $16,189 (December 31, 2019 - $10,799) were declared.
This represents monthly distributions of $0.03667 per Unit for the months of January to July 2020 and $0.03792 per Unit for the
months of August to December (December 31, 2019 - monthly distributions of $0.03416 per Unit for the months of January to
July and $0.03667 per Unit for the months of August to December).
14. Segment reporting
The REIT owns, manages and operates 29 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.
80Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
15. Revenue from investment properties
The components of revenue from investment properties are as follows:
Rental revenue
Revenue from services
16. Finance costs
Finance costs are comprised of the following:
Interest expense on mortgages
Interest expense & standby fees on credit facility
Amortization of financing charges
Amortization of mark-to-market adjustments
Interest income
Interest expense & other financing charges
Distributions on Class B LP Units (Note 8)
Distributions on Class C LP Units (Note 9)
Finance costs - operations
Fair value loss (gain) on Class B LP Units
Fair value loss (gain) on interest rate swap
Finance costs
December 31, 2020
102,268 $
22,661
124,929 $
December 31, 2019
85,588
18,850
104,438
December 31, 2020
16,735 $
1,838
548
(770)
(1,653)
16,698
10,162
6,907
33,767 $
(63,298)
2,429
(27,102) $
December 31, 2019
12,255
2,619
316
(778)
(541)
13,871
9,195
7,066
30,132
104,241
(879)
133,494
$
$
$
$
$
17. 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 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, 2020, the remaining unforgiven balance of
the loan which has not been recorded by the REIT is $15,912 (December 31, 2019 - $17,136). 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, 2020, the remaining unforgiven balance of
the loan which has not been recorded by the REIT is $4,032 (December 31, 2019 - $4,368). 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, 2020, the REIT has advanced the full commitment of $30,000 (December 31, 2019 - $19,922, committed to
advance an additional $10,078) to an affiliate of MPI to support its redevelopment of Fifth and Bank in Ottawa.
As at December 31, 2020, the REIT has committed to fund interest costs as a deemed advance up to an additional $2,012 to a
limited partnership 50% owned by MPI to support its development of Lonsdale Square in North Vancouver.
81Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
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, 2020, the maximum potential obligation resulting from this guarantee is $13,382 (December 31, 2019 - $13,711).
18. 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 fixed rate instruments, changes in market interest rates do not have
any significant direct effect on the REIT’s income.
The REIT's financial liabilities comprise both fixed rate and variable 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. 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 comprise variable 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, 2020, the REIT has a variable rate credit facility of $200,000 (December 31, 2019 - $200,000) with an
outstanding balance of $31,948 (December 31, 2019 - $91,009). A 1% change in prevailing interest rates would change
annualized interest charges incurred by $319 (December 31, 2019 - $910).
(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 the prevailing market price of the Units as at
December 31, 2020 would have a $4,638 (December 31, 2019 - $5,271) change in the 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 in relation to the loans advanced to related parties, in the event that the borrowers
default on the repayment of amounts owing to the REIT. Management mitigates this risk by ensuring adequate security has
been provided.
82Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
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’s liquidity is subject to macroeconomic, financial, competitive and
other factors that are beyond the REIT’s control including the recent COVID-19 disruption.
Liquidity risk is managed through cash flow forecasting. Management monitors forecasts of the REIT’s liquidity requirements to
ensure it has sufficient cash to meet operational needs through maintaining sufficient cash and/or availability on the undrawn
credit facility and ensuring that it meets its financial covenants related to debt agreements. Such forecasting takes into
consideration the current and projected macroeconomic conditions, the REIT's cash collection efforts, debt financing plans and
covenant compliance required under the terms of debt agreements. There is a risk that such liquidity forecasts may not be
achieved and that currently available debt financing may no longer be available to the REIT at terms and conditions that are
favorable to the REIT, or at all.
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, 2020, current liabilities of $109,299 (December 31, 2019 - $57,401) exceeded current assets of $15,854
(December 31, 2019 - $8,396), resulting in a net working capital deficit of $93,445 (December 31, 2019 - $49,005). Current
liabilities as of December 31, 2020 include $31,948 payable for the credit facility which matures on July 3, 2021 at which point
the REIT intends to refinance it. The REIT's immediate liquidity needs are met through cash-on-hand, cash flow from operations,
property-level debt and availability on its credit facility. As of December 31, 2020, liquidity was $170,659 (December 31, 2019 -
$110,919) consisting of cash of $2,607 (December 31, 2019 - $1,928) and $168,052 (December 31, 2019 - $108,991) 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.
Access to this capital is dependent on the successful renewal of the REIT’s credit facility when it comes due on July 3, 2021.
Although the REIT expects to renew the credit facility, there can be no assurance that it will otherwise have access to sufficient
capital or access to capital on favourable terms. Failure by the REIT to access required capital could have a material adverse
effect on its financial conditions or results of operations and its ability to make distributions to Unitholders. The committed
credit facility consists of the following:
Committed
Available
Utilized
$
December 31, 2020
200,000 $
168,052
31,948
December 31, 2019
200,000
108,991
91,009
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
2021
34,209 $
31,948
66,157
5,341
23,448
8,929
10,039
2022
98,748 $
—
98,748
5,510
21,667
—
—
2023
57,964 $
—
57,964
50,234
18,180
—
—
2024
56,945 $
—
56,945
50,499
13,917
26
—
2025
31,097 $
2026 &
thereafter
320,450 $
31,097
63,541
11,646
—
—
—
320,450
42,399
35,306
10
—
Total
599,413
31,948
631,361
217,524
124,164
8,965
10,039
18,410
413
151
46
—
1,318
20,338
$
132,324 $
126,338 $
126,529 $
121,433 $
106,284 $
399,483 $ 1,012,391
The contractual cash flows do not include any unamortized mark-to-market adjustments or unamortized deferred financing
costs.
83Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
19. 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 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 REIT closely monitors its capital position. The REIT is also subject to certain financial covenants and is in compliance with
these covenants. Management has performed stress testing on the REIT’s covenants to ensure that the REIT continues to meet
its covenant obligations in the long term.
The components of the REIT's capital are set out in the table below:
Liabilities (principal amounts outstanding):
Class B LP Units
Class C LP Units
Mortgages1
Credit facility
Unitholders' equity
December 31, 2020
December 31, 2019
$
$
463,806 $
217,524
599,413
31,948
1,312,691
850,224
2,162,915 $
527,104
222,702
487,876
91,009
1,328,691
686,775
2,015,466
1 Includes funds held in escrow in connection with Minto one80five financing (Note 10).
20. Supplemental cash flow disclosures
Change in non-cash working capital comprises the following:
Year ended
Prepaid expenses and other assets
Resident and other receivables
Tenant rental deposits
Due to related parties
Accounts payable and accrued liabilities
December 31, 2020
811 $
(223)
252
(170)
(4,399)
(3,729) $
December 31, 2019
(1,461)
(838)
758
(2,696)
(2,502)
(6,739)
$
$
84Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
21. Unit-based compensation
Executives
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:
Opening balance
Unit-based compensation expense
Fair value (gain) loss
Closing balance
December 31, 2020
December 31, 2019
$
$
655 $
1,160
(155)
1,660 $
176
291
188
655
The details of movement in Deferred Units for the executives is as follows:
Opening balance
Granted
Distribution equivalents
Forfeited
Closing balance
Trustees
December 31, 2020
December 31, 2019
108,421
49,500
3,170
—
161,091
48,742
64,000
967
(5,288)
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.
85Minto Apartment REIT|2020 Annual Report Minto Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
A summary of the Deferred Units granted and the value of Unit-based compensation expense recorded for the Trustees is
presented below.
Balance, December 31, 2018
Granted and vested
Distribution equivalents
Fair value loss
Balance, December 31, 2019
Granted and vested
Distribution equivalents
Fair value gain
Balance, December 31, 2020
22. Operating leases
Units
18,652 $
22,111
559
—
41,322 $
25,048
1,139
—
67,509 $
$
345
462
12
137
956
490
23
(94)
1,375
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 15 years. There were no residents that accounted for more
than 10% of the REIT's total rental revenue for the year ended December 31, 2020 and 2019. 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, 2020
25,913 $
4,623
637
31,173 $
December 31, 2019
30,855
3,156
405
34,416
$
$
86Minto Apartment REIT|2020 Annual Report 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
Martin Tovey
Senior Vice President, Investments
Paul Baron
Vice President, Asset Management
Edward Fu
Vice President, Finance
Ben Mullen
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 The Minto Group
Simon Nyilassy(1,2,3)
Chair of the Audit Committee, CEO
of Marigold & Associates Inc.
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)
Senior Vice President and Chief
Financial Officer of Selection Group
( 1 ) Member of the Audit Committee
(2) Member of the Compensation, Governance and Nominating Committee
(3) Independent
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 2020 – July 2020
$0.03667 per Unit per month
August 2020 – December 2020
$0.03792 per Unit per month
Annual Meeting
The Annual Meeting of Unitholders
will be held virtually on Thursday,
May 27, 2021 at 11:00am.
87Minto Apartment REIT|2020 Annual Report Concept Image
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Lonsdale Square Financing and Purchase Option
The REIT has agreed to provide an $11.9 million investment loan to assist in funding the development of a new residential
rental property in North Vancouver. This property represents the first phase of the Lonsdale Square development and consists
of 113 residential suites and approximately 7,800 square feet of retail at grade. The loan is the REIT’s first investment in the
Greater Vancouver market and fulfills its strategic mandate to build a presence in all six of Canada’s major urban markets. The
REIT has the option to purchase the property at 95% of its appraised fair market value upon completion. By participating as
a lender to the development, the REIT generates accretive earnings during the construction period without any exposure to
construction risk.
Repositioning Program
The REIT continually monitors 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 accretive financial returns on
invested capital. Given the predictable costs and revenue
associated with suite repositioning and the ability to meter
out capital in small increments, our repositioning program
offers the best risk-adjusted return on capital of all of the
REIT’s investment opportunities.
1.613.230.7051
info@mintoapartmentreit.com
Minto Apartment REIT
200-180 Kent Street
Ottawa, ON, K1P 0B6
www.mintoapartments.com