Minto REIT declines option to buy Glebe rental complex, citing high costs of capital

David Sali

June 8, 2023

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Minto Apartment REIT will not exercise its option to purchase a major rental development in the Glebe from sister company Minto Properties because rising interest rates have made the cost of financing the deal too expensive, the Ottawa-based REIT said this week. In a statement issued Wednesday, the REIT said it is focused on maximizing its funds from operations per unit, “and given the REIT's current cost of capital, exercising the Option to Purchase does not represent an attractive allocation of capital, despite the high-quality and strong expected performance of the property.” The eight-storey, mixed-use project at 99 Fifth Ave., dubbed Fifth + Bank, was completed in 2021. Its 163 rental suites are currently fully leased. In 2018, Minto Properties received a $30-million loan from Minto Apartment REIT to help finance the project. The loan matures on Jan. 31, 2024, and the REIT said in a statement this week it hopes to negotiate a deal with its sister firm that will see Minto Properties repay the loan sooner “should circumstances permit.” The REIT said it plans to use the proceeds to repay a portion of its revolving credit facility. The company also said it wanted to eliminate the “uncertainty related to the prospective purchase of Fifth + Bank.” The decision comes as the organization is refinancing hundreds of millions of dollars’ worth of mortgages amid rising interest rates that are jacking up the costs of servicing its debt and eating into its cash flow. In its most recent earnings report, the REIT said its funds from operations declined from $12 million in the first quarter of 2022 to $11.6 million in the first three months of this year. It said the drop was due mainly to the effects of rising interest rates on its revolving credit facility and higher interest costs on variable-rate mortgages. “Fifth + Bank is a new, attractive urban asset that any apartment owner would like to have in its portfolio,” Jonathan Li, the REIT’s president and CEO, said in a statement. “However, current market conditions plus our cost of capital must be factored into any decision, and as a result, we believe it’s in the best interest of the REIT to terminate the Option to Purchase.” Minto Group CEO Michael Waters, whose firm owns Minto Properties, said the company “will evaluate its alternatives” and “endeavour to preserve an ability for the REIT to purchase the property at some point in the future.”