Minto Apartment REIT to Enter Metro Vancouver Market with 50% Purchase of Lonsdale Square

OTTAWA, ON, Dec. 16, 2024 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) announced today it has entered into a definitive agreement (the "Transaction") under which the REIT has agreed to purchase a 50% managing interest in Lonsdale Square. A national Canadian life insurance company (the "Partner") has agreed to purchase the remaining 50% non-managing interest. Completed in Q1 2024, Lonsdale Square is a purpose-built rental building located in central Lonsdale in North Vancouver consisting of 113 suites and ground floor retail highlighted by an upscale brewpub and a pharmacy. 

The undiscounted purchase price for 100% of the asset of $111.5 million compares favourably with the $114.3 million average from two independent appraisals. The REIT has agreed to purchase 50% of the asset for $52.96 million, representing a 5.0% discount on its share of the undiscounted purchase price (consistent with the discount in the REIT's original purchase option for the asset), and a 7.3% discount to the average appraisal value. The REIT will fund its portion of the purchase price by entirely assuming and being solely responsible for a $52.96 million mortgage which is equal to 100% of the REIT's discounted share of the purchase price. The mortgage is CMHC-insured, bears an annual interest rate of 3.9% and has a maturity date of December 1, 2034. Upon completion of the Transaction, the REIT will also receive full repayment of the $14.0 million convertible development loan ("CDL") associated with the asset, which will be used to repay a portion of its revolving credit facility. The REIT will receive customary asset management and property management fees to manage and operate Lonsdale Square. Based on the REIT's purchase price for the asset, the implied stabilized capitalization rate is in the low 4% range. 

Transaction Highlights

• The REIT makes its first property acquisition in the Metro Vancouver market at a discount to market value
• Purchase price validation from an arm's length institutional investor
• Advances the high grading of the portfolio
  • Newly-constructed asset in highly desirable Lonsdale neighbourhood
  • Reduces overall portfolio age
  • Minimal future capital expenditure requirements relative to older assets
  • ESG benefits of owning a new building that is energy efficient and has a smaller carbon footprint than older buildings
• Creative transaction structure allows the purchase of a new asset without diluting cash flow per unit
  • Cash flow is augmented from asset management and property management fees
  • No requirement for equity capital by the REIT
  • Transaction fully funded without accessing the REIT's revolving credit facility, which is currently approximately 150 basis points higher than the CMHC-insured mortgage to be assumed by the REIT at closing
• Net proceeds from the repayment of the CDL will be used to repay a portion of the REIT's revolving credit facility
• The Transaction is expected to be accretive to FFO and AFFO per unit

Pro Forma Leverage Adjusted for Subsequent Events

As at September 30, 2024, debt to GBV was 42.0% and variable-rate debt as a percentage of total debt was 12%. At the end of January 2025, pro forma for: (i) the Transaction, including the repayment of the CDL associated with Lonsdale Square; (ii) the previously announced upward debt refinancings; (iii) the previously announced sale of the Castleview property; and (iv) ongoing cash flow requirements, pro forma debt to GBV is anticipated to remain approximately 42% and no variable-rate debt is expected to be outstanding. 

"Our team worked hard to design and implement a transaction that is beneficial to unitholders. The Transaction adds a newly-built asset in the attractive Metro Vancouver market to our portfolio in a manner that is accretive to FFO per unit. We did not have to access expensive and dilutive new equity capital to fund any portion of the Transaction because we implemented a financing structure that fully funds it with CMHC financing, at a significantly lower interest rate compared to our revolving credit facility. Moreover, the REIT will reduce its variable-rate debt exposure by using the proceeds from the repayment of the CDL to repay a portion of the outstanding revolver balance," said Jonathan Li, President and CEO of the REIT. "We believe the REIT has demonstrated prudence and discipline over time and we will continue to be disciplined when considering future acquisition opportunities, which will be evaluated in the context of cost of capital, pro forma leverage and prevailing market conditions."

"This transaction underlines the benefit of the REIT's relationship with the Minto Group and we would like to thank them for their flexibility and patience regarding this asset," added Allan Kimberley, lead independent trustee of the REIT. "The Minto Group agreed to extend the maturity date of the purchase option, accept a purchase price discount greater than 5.0% of appraisal value and implement long-term financing which is beneficial to the REIT."

The Transaction was reviewed and unanimously approved by an independent committee of the Board of Trustees and is expected to close in January 2025. The transaction constitutes a "related party transaction" for purposes of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), but is exempt from the valuation and minority approval requirements.

Description of Lonsdale Square

Lonsdale Square is located in the highly desirable city of North Vancouver just south of the Upper Levels Highway, adjacent to the new Harry Jerome Community Recreation Centre (HJCRC) and directly on major public transit routes providing excellent access to key destinations, including downtown Vancouver. The asset is a six-storey, purpose-built rental building offering premium amenities including a rooftop terrace, penthouse social lounge, and 108 parking stalls and is surrounded by diverse retail, restaurants, outdoor parks and trails. The building has a state-of-the-art smart building operating system including a package and food delivery system, a resident app, remote video intercom, keyless access control and security cameras. Current residential occupancy is 93% and the building's approximately 8,000 square feet of ground floor retail space is 100% leased to an upscale brewpub, a pharmacy and a vitamin/nutrition retailer. 

The HJCRC is scheduled to be completed in 2025 and is expected to bring additional vibrancy, foot traffic and sense of community to the immediate neighborhood. Once completed, it will be a 200,000 square foot, state-of-the-art community facility that will offer a 500-person capacity hockey arena, a modern aquatic centre, indoor/outdoor fitness facilities, a skate park, preschool and youth spaces and a seniors activity centre. 

About Minto Apartment Real Estate Investment Trust

Minto Apartment Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario to own income-producing multi-residential properties located in Canada. The REIT owns a portfolio of high-quality multi-residential rental properties located primarily in urban centers in Canada's major markets of Toronto, Montreal, Ottawa and Calgary. For more information on Minto Apartment REIT, please visit the REIT's website at https://www.mintoapartmentreit.com.

Forward-Looking Information

This news release may contain forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events and in some cases can be identified by such terms as "expected", "will" and "may". Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under "Risk Factors" in the REIT's Annual Information Form dated March 6, 2024, which is available on SEDAR+ (www.sedarplus.ca). The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

Non-IFRS Financial Measures

This news release contains financial measures that are not defined under International Financial Reporting Standards ("IFRS") and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. FFO per unit and AFFO per unit are measures of financial performance used by the REIT's management and other real estate businesses. These measures are not defined by IFRS and do not have standardized meanings prescribed by IFRS. See the REIT's Management Discussion & Analysis dated November 12, 2024 for further discussion of these and other non-IFRS financial measures.

SOURCE Minto Apartment Real Estate Investment Trust