Canada’s newest real estate investment trust is seeking to raise up to $354 million through its initial public offering. Continuum REIT will be based in Toronto and own a portfolio of Ontario rental apartment properties valued at about $1.5 billion.
The 32 properties are currently owned by Q Management LP funds (QMLP) and managed by its subsidiary QResidential. The portfolio is heavily concentrated in Toronto and the GTA (25 properties) but also includes four assets in Hamilton, two in Ottawa, and a London, Ont., community comprised of nine buildings.
The REIT says it is targeting an initial yield of 2.01 to 2.14 per cent.
The IPO was announced earlier in October, and the principals have been steadily providing additional information through marketing materials and regulatory filings during the ensuing weeks. The IPO is scheduled to close on Nov. 11.
Continuum REIT offering
It also contains provision for an overallotment of up to 15 per cent, which would bring the total proceeds to $354 million if exercised in its entirety, at the maximum unit value. At the lower end of the unit value, the IPO and overallotment would raise about $308 million.
At the close of the offering, documents indicate about 50,791,464 units will be outstanding. Existing unitholders will own at least 32,141,464 of the units (representing 63 per cent of the total excluding the overallotment, or 60 per cent including the overallotment).
Principals would own about 2.1 million units, representing about 4.0 or 4.2 per cent of the total.
Daniel Argiros will be the REIT’s president and CEO, and Richard Dainard its chief financial officer. Argiros is a co-founder, president and CEO of QMLP, while Dainard is a co-founder (with Argiros) of affiliated firm Conundrum Capital Corporation.
QMLP is a partnership between Conundrum and Manulife Asset Management Private Markets, a division of Manulife Financial Corporation (MFC-T). As of Q3 2018, Q Management LP funds owned and operated 10,615 suites in 81 high-rise buildings located in cities across Ontario.
Marketing materials for the portfolio highlight some impressive, but not surprising, statistics and projections considering the province-wide Ontario apartment vacancy rate was at just 1.8 per cent at the end of 2018, according to CMHC figures. In Toronto, vacancy was even lower at 1.1 per cent.
Details about the portfolio
The portfolio contains 5,133 apartments in the GTHA, with 85 per cent of the NOI coming from those 44 buildings. The Ottawa buildings contain 581 apartments, with 557 units in London.
Among largest properties in the portfolio are:
* Westwood Abbey apartments in Mississauga, 604 apartments;
* Royal Oaks in London, 557 apartments;
* Parkway Place I, II and III on Thornecliffe Park Drive in Toronto, 941 apartments;
* Country Club Towers on Weston Road in Toronto, 428 apartments;
* Ville Marie buildings I to IV in Hamilton, 425 apartments.
Continuum documents say there is potential for significant same-unit rental growth, from the current $1,224 monthly average to $1,592 market rents. The buildings have undergone $146 million in upgrades during the past decade, a program that continues as tenants turn over the units.
Occupancy is at 99.7 per cent.
There is also the potential to add up to 1,500 new suites at seven of the properties: six in the GTHA and the London site.
The REIT would assume a total mortgage debt of $622.1 million for the portfolio, representing a debt-to-gross-book-ralue ratio of about 44 per cent.
Overall weighted average interest rate on the mortgages is 3.46 per cent with 3.5 years term to maturity.
The valuation of the portfolio equates to about $239,000 per door. The figures, provided by Colliers International to Continuum, also noted the properties could have a five per cent premium added to their overall value because of the synergies of the portfolio, increasing the total value to about $1.572 billion or $251,000 per door.
In addition to Argiros, the REIT’s board of trustees would be comprised of:
* chairman John Barnett, a former Rothmans CEO, the chair of Alcanna Inc., and director for Clairvest Inc.;
* Betty DeVita, founder and CEO of fintech advisory practice Betdev Solutions;
* Bob Dolan, former executive with Bank of Montreal, John Labatt Ltd., and CN Rail;
* James Payton, former head of asset management and leasing for the GM Pension Fund;
* John Ruffolo, who founded OMERS Ventures;
* and Ross Sinclair, a partner with PricewaterhouseCoopers LLP.
QMLP currently owns and/or manages $2.6 billion in multiresidential apartments across Ontario. It has more than 300 employees.