Minto Apartment REIT is breaking into the Montreal market and increasing its Toronto portfolio with the purchase of 50 per cent interests in two “high-quality” multi-residential rental properties for $209 million.
The REIT announced the two separate agreements on Thursday afternoon. Minto (MI-UN-T) says the acquisitions are a 1,004-unit Rockhill property in Montreal, and the multi-tower, 409-unit LYM apartment complex in the Leslie/York Mills area of Toronto.
“These acquisitions increase our suite count by 31 per cent, while also advancing our growth and geographic expansion strategies,” said Michael Waters, the CEO of Minto Apartment REIT, in the release.
“The acquisition of Rockhill represents the REIT’s entry into the strong Montreal rental market and provides it with immediate scale in the city. Consistent with the REIT’s differentiated urban focus, it now has a presence in five of Canada’s six largest metropolitan regions including Toronto, Montreal, Ottawa, Calgary and Edmonton.
“The LYM property not only increases our exposure in the robust Toronto market, it is an asset with the potential for a value-add suite repositioning program and site intensification.”
After completing these acquisitions, Minto REIT will have ownership interests in 5,962 suites, an increase of 1,683 suites since its initial public offering last July.
The REIT also announced it will issue 7,660,000 shares on a bought deal-basis at a price of $19.60 per share to a syndicate of underwriters including TD Securities Inc. and BMO Capital Markets to raise about $150 million. The underwriters also have an option to purchase up to an additional 1,149,000 at the same price, which would increase the proceeds to $173 million. The funds would be used to finance a portion of the purchase and to repay a portion of its existing debt.
Other financing will be satisfied in part by assuming an existing $23.5 million mortgage on the Toronto property, and arranging approximately $67.5 million in new mortgage financing. Following completion of the acquisitions and the offering, Minto REIT says its debt-to-gross-book-value ratio will be approximately 46 per cent.
Minto REIT will become the paid asset and property manager for both properties. Existing Rockhill property manager Cogir Management Corp., will be retained for up to six months to assist with that transition.
Minto REIT is partnering with IG Investment Management, Ltd. (via the Investors Real Property Fund) to acquire Rockhill from Ivanhoé Cambridge for $268 million. The price represents a four per cent cap rate on forecasted year-one NOI.
Minto is arranging a $135-million mortgage term loan to assist the co-acquirers with the funding.
Constructed in 1967-’68, Rockhill comprises six buildings on approximately 7.6 acres at 4850-4874 Côte-des-Neiges Road in Montréal. The 1,004 suites average approximately 777 square feet per suite, with an average sitting monthly rent of $1,352.
Rockhill is adjacent to Mount Royal Park, close to the University of Montréal, multiple hospitals and the Côte-des-Neiges Metro Station, resulting in a high Walk Score of 88. The neighbourhood has a vacancy rate of two per cent and average household income of more than $65,000 per year.
More than 35 per cent of the local population is in their prime renter ages of 20-29 or over 65. Rockhill targets a mixed demographic of students, healthcare professionals, families and retired couples, with a mix of traditional and renovated suites and an extensive amenity package.
Since acquiring Rockhill in 2011, Ivanhoé Cambridge has invested significant capital in the property largely into balconies, parking, common areas and landscaping. These investments will reduce maintenance expenditures, allowing Minto and I.G. to focus on value-add suite repositioning and amenity improvements.
The REIT expects the Rockhill transaction to close on or about May 6.
Minto REIT has agreed and waived conditions to acquire Minto Property Inc.’s 50 per cent interest in LYM for approximately $75 million – a five per cent discount to an independent appraised value.
The REIT will assume a $23.5-million mortgage at an interest rate of 2.82%. The purchase price represents a 3.75 cap rate.
Constructed in 1968-’69, LYM includes three 18-storey towers on 7.8 acres at 740 and 750 York Mills Road and 17 Farmstead Road in Toronto. The buildings have a total of 409 suites with an average monthly rent of $1,707.
LYM is in close proximity to schools, grocery stores, shopping, public transit and parks.
Following the successful implementation of test suites in 2018, the REIT believes LYM presents a significant opportunity for repositioning. The site also represents an intensification opportunity, with recent zoning amendments which permit the development of 192 rental terrace homes averaging approximately 1,050 square feet.
The LYM transaction is expected to close on or about May 1.