Minto Apartment REIT
(MI.UN-T) C$22.98
Recovery to Continue into Q4, But Should Set Up Well for 2022
Event
Forecast update. For Q3 operating highlights, click here.
Impact: NEUTRAL
Minto reported positive trends in its key metrics in Q3, including a q/q uptick in occupancy and growth in its MTM, although management noted it has still not reached pre-pandemic levels. Average occupancy for Q3 was 92.9% (+140bps q/ q), and reached 94.8% on September 30, reflecting improved leasing momentum in the latter part of the quarter. This trend continued into October (200+ leases signed). Management expects occupancy to continue to improve, although the winter months are typically slower from a leasing perspective. Of note, in Toronto, which has been Minto's slowest market, 94 leases were signed in October, although the REIT has had to rely on incentives (less so in other markets). On the cost side, we anticipate leasing expenses will remain elevated in Q4, while inflationary pressures will likely continue to push labour costs upwards. As such, we are expecting another relatively muted quarter of SPNOI growth in Q4 (non-controllable costs such as property taxes, utilities, and insurance premiums are also impacting margins). Looking out to 2022, we anticipate a return to more normalized occupancy levels, particularly as the Toronto market continues to rebound. 2022 results should also benefit from the burning off of incentives, which peaked in Q3/21, as well as a recovery in its furnished suite portfolio, and the lapping of easy comparable quarters.
Developments. The REIT commenced construction at Richgrove and expects to be in the ground at Leslie York Mills later this quarter. Management is targeting levered IRR's in the high-teens on these projects and noted that the vast majority of the costs are tendered prior to commencing construction. At Richgrove, 90%+ of the costs have been tendered below pro forma, while at Leslie York Mills, tendering is moving along well.
Forecast. Our forecast is largely unchanged following an in line quarter. Our $26.50 NAV/unit estimate is +3%.
TD Investment Conclusion
We believe that Minto's high quality, urban portfolio, solid liquidity position, and strong operating platform and management team position it well to benefit from a recovery in market fundamentals. We are maintaining our BUY rating and $28.00 target price.