Minto Apartment REIT Announces $131.2 Million Conditional Agreement to Acquire a 40% Interest in an Urban Toronto Property with Three High-Rise Towers and Significant Repositioning and Intensification Potential

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Acquisition Highlights

• Acquisition of a managing 40% interest in High Park Village, a 750 suite multi-residential rental property in Toronto's High Park neighbourhood for approximately $131.2 million, representing a 5% discount to appraised value;
• Ongoing repositioning program expected to generate significant return on investment, with further potential value to be gained from intensification;
• Purchase price to be satisfied through the assumption of an existing mortgage loan, existing credit facilities and issuance of 2,806,122 exchangeable Class B limited partner units of Minto Apartment Limited Partnership at $19.60 per Class B limited partner unit, which will be subject to a four month lock-up;
• The acquisition increases the REIT's presence in GTA from 21% to 30% based on suite count;
• Transaction is consistent with stated strategy of executing on acquisitions, increasing portfolio diversification in core urban markets, and leveraging strategic Minto Group relationship;
• Enhances portfolio quality and diversification to drive long term unitholder value;
• The terms of the Acquisition were approved by a committee of independent trustees of the REIT, and
• The Acquisition is exempt from the valuation and minority approval requirements of MI 61-101; however, pursuant to section 604 of the TSX Company Manual, the Acquisition is subject to the approval of a majority of the REIT's unitholders, excluding MPI and its affiliates and associates.

OTTAWA, July 15, 2019 /CNW/ - Minto Apartment Real Estate Investment Trust (TSX: MI.UN) (the "REIT") today announced that its operating subsidiary, Minto Apartment Limited Partnership (the "Partnership") has entered into an agreement (the "Acquisition") with Minto Properties Inc. ("MPI") to acquire MPI's 40% interest in the High Park Village apartment complex ("HP" or the "Property") in Toronto. The high-quality, multi-residential property is located in the attractive High Park neighbourhood and comprises 750 suites. The purchase price is approximately $131.2 million, representing an implied cap rate of approximately 4.02% on forecasted year-one net operating income, net of the intensification portion of the project, and a 5% discount to the independently appraised value as at December 31, 2018. The Acquisition is conditional on TSX approval and unitholder approval, excluding MPI and its affiliates and associates.

"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. "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. 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."

Property Profile – High Park Village

Constructed in 1965, the Property consists of three buildings on 5.6 acres located at 111 Pacific Avenue, 255 Glenlake Avenue and 66 Oakmount Road in Toronto. The buildings have an aggregate of 750 suites, comprised of studio, one-bedroom and two-bedroom units, with an average monthly rent of $1,745. Canada Pension Plan Investment Board ("CPPIB"), the existing co-owner of the Property, will retain its 60% co-tenancy interest.  Following the Acquisition, the Partnership will serve as the property and asset manager for the co-tenancy and will earn fees for these services.

The Property is located in an attractive area just north of High Park, the City of Toronto's largest public park. There are many nearby amenities, including plentiful retail and dining options on Bloor Street West, and the Property is a short walk from two subway stations that provide easy access to the rest of the city. 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, respectively, and approximately 28% are in their prime renter ages of 20-29 and over 65. 

Repositioning Program and Intensification Opportunity

A repositioning program at the Property began in 2016. To date, approximately 45% of the suites have been repositioned, leaving more than 400 suites to be renovated. The repositioning of these suites is expected to generate a return on investment in line with the REIT's 8% to 15% target.

The site also represents a potential intensification opportunity and MPI has submitted an intensification proposal that is currently under review by the Local Planning Appeal Tribunal.  In the event of a future intensification, a fee is payable by CPPIB to the asset manager on the stabilization of the intensification project. Since MPI has agreed to receive exchangeable units as consideration for the Property purchase price at a premium to the current market price of the REIT's units, to partially offset this differential, the REIT has agreed to share with MPI the intensification fee that it receives, if any, as to 25% by the Partnership and as to 75% by MPI.

Acquisition Funding

The aggregate purchase price of approximately $131.2 million for the Acquisition will be satisfied by:

• The assumption of 40% of an existing approximately $98.7 mortgage term loan that matures April 1, 2026 and bears interest of 3.375%;
• The issuance of $55 million in Class B limited partner units of the Partnership to MPI, at a price of $19.60 per Class B limited partner unit, representing a premium of 1.3% based on the 5-day volume weighted average price of REIT units. Class B limited partner units are exchangeable for units of the REIT on a one-for-one basis and also include the issuance of one special voting unit of the REIT for each Class B limited partner unit that is issued; and
• The REIT's existing revolving credit facility.

Following completion of the Acquisition, MPI will hold an approximately 49% indirect ownership interest in the REIT and the REIT's Debt to Gross Book Value ("GBV") ratio (a non-IFRS measure) will be approximately 45%.

Related Party Transaction and Unitholder Approval

The Acquisition constitutes a "related party transaction" for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The Acquisition is exempt from the valuation and minority approval requirements of MI 61-101 in accordance with sections 5.5(a) and 5.7(a), respectively, by virtue of the fact that the value of the transaction is less than 25% of the REIT's market capitalization. However, pursuant to section 604 of the TSX Company Manual, approval by unitholders holding a majority of the REIT's units, excluding MPI and its affiliates and associates, is required because the total consideration to be received by MPI from the Acquisition, which includes an issuance of securities exchangeable for REIT units, exceeds 10% of the REIT's market capitalization.

The terms of the Acquisition and the ownership and management arrangements with CPPIB were approved by a committee of independent trustees of the REIT. The independent committee reviewed and considered, with the advice of counsel, the commercial and legal aspects of the transaction, including price, financing, repositioning plans and potential intensification, as well as the transaction documentation and compliance with applicable securities laws and rules. The Special Committee recommends approval of the Acquisition by unitholders.

Following unitholder and TSX approval, compliance with the requirements of the Competition Act and the satisfaction of other customary closing conditions, the REIT expects the Acquisition to close in Q3 2019.

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 urban markets in Canada. The REIT owns a portfolio of high-quality income-producing multi-residential rental properties located in Toronto, Montreal, Ottawa, Calgary and Edmonton. For more information on Minto Apartment REIT, please visit the REIT's website at: www.mintoapartments.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 "will" and "expected". 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 Management Discussion & Analysis and Annual Information Form, each dated March 19, 2019, which are available on SEDAR (www.sedar.com), as well as the ability of the REIT to complete the proposed Acquisition, including the assumed mortgage financing contemplated therein.  Certain information in this press release may be considered as "financial outlook" within the meaning of applicable securities legislation.  The purpose of this financial outlook is to provide readers with disclosure regarding the REIT's reasonable expectations with respect to the proposed Acquisition. Readers are cautioned that the financial outlook may not be appropriate for other purposes.  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 Measure

This news release contains a reference to Debt to GBV ratio, which is not a defined measure under International Financial Reporting Standards ("IFRS") and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. The REIT believes that Debt to GBV is an important measure of financial position. See the REIT's Management Discussion & Analysis dated March 19, 2019 for further discussion of this and other non-IFRS financial measures.

SOURCE Minto Apartment Real Estate Investment Trust

For further information: Julie Morin, Chief Financial Officer, Minto Apartment Real Estate Investment Trust, Tel: 613.230.7051