Minto Apartment REIT (MI-UN-T) will spend $131.2 million to acquire a 40 per cent managing interest, currently held by its parent company Minto Properties Inc. (MPI), of the 750-unit High Park Village apartment complex in Toronto.
The purchase has two major attractions for the REIT: first, the property offers significant new development opportunity and second, a program is already under way to upgrade and reposition the apartments in the three towers.
“Our proprietary relationship with the Minto Group has brought us another strong property acquisition opportunity that meets our key criteria,” said Michael Waters, chief executive officer of Minto Apartment REIT, in a release. “The High Park Village property has an outstanding urban location in a desirable Toronto neighbourhood, increasing our exposure to Canada’s largest city and a robust housing market.
“A suite repositioning program at the property is in progress and is expected to generate strong ongoing returns. In addition, we expect to add significant value in the future through an intensification initiative, for which MPI is currently seeking municipal approvals.”
Canada Pension Plan Investment Board (CPPIB) is the co-owner and will retain its 60 per cent interest. Following the acquisition, the partnership will serve as the paid property and asset manager.
The acquisition is the latest in a series of significant additions to Minto Apartment REIT, which launched about a year ago with an initial portfolio of 22 properties with 4,279 suites in Toronto, Ottawa, Calgary and Edmonto .
Minto Apartment REIT’s recent purchases
“The addition of HP to our portfolio underlines the continuing success of our external growth strategy since our initial public offering last July, with our gross suite count increasing by 2,432 suites following the close of this transaction,” Waters said in the release.
In April, Minto Apartment REIT announced the purchase of a 50 per cent stake in Rockhill apartments, a 1,004-unit property in Montreal. It also bought a similar interest in LYM apartments in Toronto, a three-tower property with 409 units. In total, they cost $209 million.
In December, it bought The Quarters, a two-building property with 199 units in Calgary, for $63.8 million.
This latest acquisition is conditional on TSX and unitholder approval, excluding MPI and its affiliates and associates. It is expected to close during Q3 of 2019, and will increase the REIT’s ratio of apartments in the Toronto area from 21 per cent to 30 per cent of its portfolio.
The purchase price represents an implied cap rate of 4.02 per cent on forecasted year-one net operating income, and a five per cent discount to the independently appraised value as of Dec. 31, 2018.
About High Park Village
Constructed in 1965, the property consists of three buildings on 5.6 acres at 111 Pacific Ave., 255 Glenlake Ave. and 66 Oakmount Rd. in Toronto. The 750 suites are comprised of studio, one-bedroom and two-bedroom units, with average monthly rents of $1,745.
The towers are located just north of High Park, the City of Toronto’s largest public park. There are many amenities along nearby Bloor Street West, including plentiful retail and dining options, and easy access to transit including two subway stations. Accordingly, the property has a strong Walk Score of 77.
Residents of the neighbourhood have average and median household income of $115,000 and $76,000, Minto says, and approximately 28 per cent are in their prime renter ages of 20-29, or over 65.
The repositioning of suites at High Park Village began in 2016 and so far about 45 per cent have been improved, leaving more than 400 suites to be renovated. The program is expected to generate a return on investment in line with the REIT’s eight- to 15-per-cent target.
MPI has already submitted an intensification proposal which is under review by the Local Planning Appeal Tribunal.
Funding the acquisition
Minto Apartment REIT says it will assume 40 per cent of an existing $98.7-million mortgage at 3.375 per cent which matures April 1, 2026.
It will also issue $55-million in class-B shares to MPI, at a price of $19.60 per share. The shares will be exchangeable for units of the REIT on a one-for-one basis, and include one special voting unit of the REIT for each class-B share.
Additional funds will be provided through the REIT’s existing credit line.
Following the acquisition, MPI will hold approximately 49 per cent ownership in Minto Apartment REIT. The REIT’s debt-to-gross-book value will be approximately 45 per cent.